By Robert McGarvey
There’s one indisputable fact about credit union mergers: there have been a lot of them.
Callahan Associates co-founder Chip Filson – about whom, more later – has counted up the number of credit union mergers and he said there have been a staggering 1,533 credit union mergers in the past five years.
Filson also noted that some merger partners are serial players. He found one credit union that had been involved in 14 mergers, another credit union in nine, and seven had been involved in four each.
Is this good for all credit unions? That’s the question that needs to be asked. Loudly and soon..
In 1997 there were 11,659 credit unions, according to CUNA numbers. Now there are 5,785, and the number is falling.
Those numbers have many voices saying that it’s time to put the brakes on credit union mergers.
Small credit unions—usual merger targets—play an outsized role in the political landscape. “Small credit unions prop up larger ones politically,” said Sarah Snell Cooke, a longtime observer of the movement and now a Maryland based consultant.
Her point: small credit unions pack an emotional punch with members of Congress and state legislatures. Nobody dislikes them, at least nobody in politics.
Should we call a halt to all mergers?
No can do. Some need to happen.
I have talked to credit union CEOs who, off the record, told me they had merged with such-and-such credit union under pressure from regulators and/or local politicians. Those CEOs insisted to me they in many ways did not want to do the merger—the process of integrating even a tiny credit union’s members and account data is a hassle, they tell me, and the opportunity for embarrassing mistakes is plentiful. Many CEOs lose sleep over these integrations.
Count those mergers as acts of mercy.
Other mergers happen because a small credit union’s CEO retires – and the job proves hard to fill. So after an unsuccessful search the board waves the white flag and folds the credit union into another.
Others have grown weary of keeping up with technology.
There are lots of reasons to merge. Sometimes the reasons seem good.
But then there are other kinds of mergers, where a credit union – and you know two or three of them – does mergers because it has become convinced that unless it grows it will perish. And that’s despite already being over a billion dollars in assets. So it has a hunger to gobble up smaller credit unions.
Which leads us to Filson’s controversial statement: “Unfortunately, there appears to be a growing number of mergers that amount to nothing more than a giveaway of the smaller credit union’s assets to the larger credit union.”
He added, “What about the collected wealth of years of member-ownership? Out the window and into the pockets of exiting managers and the coffers of a larger financial cooperative.”
Not everybody thinks Filson has this right.
James L. This, a credit union consultant who has been involved in a significant number of mergers, has said that outright greedy grabs are uncommon. “I have heard stories about it—although I have never seen it happen in a merger I have been involved with. But I don’t think this practice is widespread or pandemic.”
Is it happening or isn’t it? Nobody knows, in part because there isn’t much transparency in credit union mergers. A lot happens in secret.
But what we do know—without doubt—is that the shrinking credit union count is bad for the movement. “Five to ten years from now the credit union movement probably won’t exist because of so many mergers,” shrugged Mansel Guerry, CEO of CUSO CULIANCE.
Guerry knows he is being dramatic, but his core point is valid. Five to ten years from now—if current trends continue—the credit union movement will look very different. And it just may have become unrecognizable.
Up in Washington State, credit union consultant Marvin Umholtz said, “I predict that there will be fewer than 2,000 credit unions in the U.S. by year-end 2020 – and the vast majority of them will be $500 million in assets and larger.”
That’s predicting a lot of mergers over the next few years.
Can it be stopped?
Some mergers—the mercy mergers—should and probably will go on.
It’s the others where maybe it’s time to call a halt.
Here’s a fact: if money is sometimes paid for merged credit unions, that means they have value, and if they have value they also probably could be saved as independent financial institutions.
There are many ways to help that, if the movement and its regulators embrace the belief that more credit unions are better than fewer. CEOs could be shared across multiple institutions, said Cooke. Back-office and compliance tasks could be provided as a service to many small credit unions, freeing them from the burden and costs of implementing their own solutions, Cooke added. And big credit unions could make it a habit—as State Employees’ Credit Union has done—to support small credit unions.
There are many ways to throw life preservers to struggling credit unions.
It won’t happen without broad commitment. But if enough believe that the soul of the credit union movement is the small credit union, enough will also agree that saving them—not merging them out of existence—is what the whole credit union movement needs.
Starting about now.