Is Wings' hostile takeover step one towards conversion?
Posted by Trey Reeme on March 16th, 2007
I’ve been completely out of touch with the world since speaking at CUES ETF. I went to the doctor four more times than I checked my email. So when I got plugged back in yesterday, I was baffled to hear of the hostile takeover attempt of Continental FCU by Wings Financial.
I hesitate to get caught up in the abstract terms of “movement” and “cooperative spirit” and “people helping people.” As we’ve said before, US credit unions look less like a movement now than ever – and this takeover attempt does nothing to help matters. But if there’s an appropriate time to appeal to any “movement” left in a credit union, now’s the time to pull out that card.
Does a successful hostile takeover attempt pave the way for a conversion? For Wings, it seems that the grass has indeed looked greener on the other side before (see below).
Randy wrote a stellar review on Verity’s blog:
I am a capitalist and firmly understand the need for mergers and acquisitions that are sometimes hostile. Credit Unions however are unique types of businesses, which are trying desperately to distinguish themselves from banks. While this act is not against the letter of credit union law, it certainly flies in the face of the spirit of the credit union movement and seems very bank-like to me. We don’t need to give bankers another reason to attack credit unions and our tax-exempt status. Wings FCU actually considered converting to a bank back in 2003 but ultimately decided to remain a credit union. Its CEO, Paul Parish had this to say, “We feel there is great value in remaining a credit union. Our board has and will focus on remaining a credit union.”
If Wings FCU wants to act like a bank, then for heaven’s sake, just become one. Please don’t do this kind of stuff that could have serious repercussions across our entire industry!
And from Doug’s blog:
Wings Financial FCU has a TIP charter (note: Wings Financial FCU was formerly the NWA Credit Union) so they can actively enroll new members for anyone that works in the airline industry. If their products and service are so compelling then members using Continental Airlines Federal Credit Union can use Wings Financial FCU for those services today….
What I do know is this is a story that will polarize the credit union movement. I am hoping for the better, meaning that it will help solidify credit unions. I was disappointed to read some commentary in a few listservs that stated this was the end of credit unions cooperating with each other. Wow, I hope not as this is one of the magical things that make credit unions and working/living in credit unions so special.
Maybe I’m missing something here. Maybe there’s a stellar reason for this and I’m too naive to see the good this does for credit unions. Somehow I doubt it, but I’m always up for debate.
Hat tip to Denise for sending the L.A. Times article.
Update: Colin calls it a “Fascinating and potentially troubling development in the world of Credit Unions.”
Trey,
Remember just a couple of months ago when we were all answering your very important question, “What do we wish for credit union in 2007?” I don’t recall anyone wishing for our first ever hostile takeover. I haven’t been able to write about this until now because my hands were shaking too much.
I’ve said it before, and I’ll say it again. Where’s a wealthy Boston merchant when you need one? What would Edward Filene say about this?
I suspect he would pay a visit to Wings and take a meeting with the entire board and smack them upside the head. Something like that scene from Moonstruck where Cher slaps Nicolas Cage in the face and yells “Snap out of it!”
And then walk away.
I sure hope the league takes some kind of stand on this. And not the party line “We support credit union self-determination.” Can you imagine Filene saying that? NO!! Leagues are supposed to support credit union principles. And this isn’t one of them. Look it up. Really not in there. Stop it. Now.
Whew…I feel better.
The folks clamoring for “credit union self-determination” are not members-at-large. One reason the Wings attempt is so scary is that it is aimed squarely at John & Mary Member, up to their eyeballs in mortgage and loan payments and who don’t see a downside to the “merger”. The $200 merger bonus is potent given that many CU members have never received a bonus dividend payout.
Isn’t there an NCUA investigation into the so called “merger bonus”?
Jesse,
Yes, as I understand it (check out Doug True’s post) http://www.dougtrue.net/
From a cold dollars-and-cents angle, Wings is attempting to buy the $29,866,049 members’ equity of Continental for a whopping $5,019,400.
I do NOT advocate this, but looking at it like Mr. Potter (the hard-nosed banker from It’s A Wonderful Life), if Continental FCU liquidated, the members’ equity would divide up to $1,194 per member. Wings is offering $200 per member.
On a strictly dollars-and-cents basis, the Wings proposal STINKS.
There is no investigation at least not yet. NCUA has said only that it has received a “preliminary” proposal from Wings, but it can only rule on proposals that are submitted jointly by the two boards. Also, the merger bonus is a business decision, and unless it would drop the CU’s capital ratio to below regulatory standards, Wings is only accountable to its existing members for the payout.
Source: NCUA 5300 Call Report for Continental FCU (charter no. 07812)
“Miscellaneous Information” Line 4: Current members 25,097
“PCA Net Worth Calculation Worksheet” Line 7: Total Net Worth $29,866,049
Dividing $29,866,049 by 25,097 members provides the per-capita member equity of $1,194.
Everyone seems to be composing their posts based on emotion rather than on fact. Aren’t credit unions supposed to act in their members’ best interests? Isn’t that what we’re supposed to do? Will someone please explain to me why this deal is not in the best interests of Continental FCU members?
From my perspective, the members get a $200 payment, lower rates on loans, higher rates on savings, lower fees, more access to the credit union through more offices (important in the airline industry) plus instant membership and ownership interest in Wings. What is the downside for the member?
Check out the year-end Callahan’s credit Union report. Continental FCU gets a Return to Member score of 49 while the score for Wings is nearly double at 96. They must be doing something right. If Continental FCU were providing appropriate value back to their member, they wouldn’t be in this spot to begin with. The best interests of the member should be the top priority.
Welcome Back Trey, and hope you are well.
This is a brilliant moment for the CU movement, or individuals in the movement to step forward and claim the customer interest.
Even when they don’t try too hard, CU’s have it over Banks, so imagine the potential if they get pro-active!
I’m totally shocked and breathless at this sort of behavior. This sort of selfish behavior makes it difficult for all credit unions to defend their position as a tax-free entity different from a bank.
I’ve got to weigh in with Roger on this one, it is about what is in the best interest of the member…
Now, I HOPE that Wings tried to approach Continental via merger first! (I’m sure the merger idea was along the lines of: Hey, we both are trying to serve airline employees – wouldn’t it be better if we didn’t compete against each other and instead were on the same team…)
If Continental wasn’t interested in a merger – then it looks like Wings felt they had to pursue it as a “takeover.”
Too bad on the PR side for Wings, and not something that I’d bet alot of CU senior management teams would do, but … Wings obviously feels that this is a strategically important thing for them to be doing.
Ok, I have to say first that I am really ignorant when it comes to this kind of stuff. But from what I’ve read, I’m pretty confused. It is about what is in the best interest of the member, and if they can receive better rates and service and all that, then great. But, if they are worth $1194 and they are being offered $200 then that doesn’t seem to me to be in their best interest. That seems short and sly to me.
Also, if it does in fact harm our status as tax-exempt credit unions and/or give credit unions in general a bad name and make us just like a bank, then I have a hard time understanding how that is in the best interest of any credit union member anywhere!
Maybe I am over-simplifying things because of my lack of knowledge here. But then again, I learn a lot from my 3 year old because of his “lack of knowlege” and simplistic view of things. So . . .
Jessica,
I couldn’t agree more. This has become a big financial pissing match. Right? Who has more money. Who’s cheaper? The biggest and best (meaning deepest pockets) credit unions should be allowed to bastardize our reputation??
Callahan’s return to member is just one measure. It is not the only measure of a credit union’s sucess. I have written a letter to the Chairman of the Board of Wings (as a CU advocate) asking him to please stop this madness. I suggest we all do.
SIDEBAR: He, of course, has not responded.
Oh oh oh! Tell me how to reach him. I love to make my opinion heard! :)
Two things from the Filene Research Institute which are inextricably linked:
1. Credit Unions need to be aware of and measure the “value” they provide to members, and
2. This situation has the potential to send a chilling effective the cooperative nature of credit unions.
Jessica,
Everything (and everyone) you need to know involved with this hostile takoever is on the webiste:
www.continentalwings.com
Go get ‘em!
D.
Interesting article on this topic from two credit union icons. Remember, it should be all about what’s in the members’ best interests.
http://www.creditunions.com/home/articles/template.asp?article_id=1668
Roger,
You’re right, good article. And not to be fiesty or anything, but there are some major issues here.
First, let me quote: “In any event, good credit union mergers should be celebrated: They make for a better, stronger credit union movement. In good mergers, both the acquired membership and the acquiring membership are better off.” (Mergers) “they should be seen as a means of improving member service and thereby making a stronger, healthier credit union movement.”
Ok, I have to emphasize, GOOD credit union mergers are being discussed in this article. NOT hostile take overs. I also have to emphasize that mergers are supposed to “make a stronger, healthier credit union movement,” NOT destroy the fragile basis of it that still exists.
Now, on to this “proposal,” if you can really call it that. You are 100% right, in that it is supposed to be about what’s in the best interest of the members. However, is this takeover (because that’s really what it is, not a merger), really what’s in the best interest of the members? Because when I finally got around to doing research, I found that the promises and incentives being promised on the merger website are inaccurate. They claim that interest rates will be lower on loans and credit cards and higher on savings. However, when I researched the rates posted on the individual sites, it was the other way around. Continental’s rates were better than Wing’s. Now, maybe that has changed recently in order to compete, but the fact is, Continental does NOT want this! And as I can see, there is no reason for it. While there might be room for improvement (and lets not forget that we all have some of that), why not let them improve. Why is it a matter of taking them over? What is the point of this so called “merger proposal!” I’m missing it apparently.
Roger,
If we’re purely talking about rates. Wouldn’t it be in the best interests of most of our “depositors” to open an account with ING?
Wouldn’t it be in the best interests of the majority of our cardholders to go with Capital One?
Shouldn’t our members go directly through GMAC financing so we won’t have to use member’s money to BUY the loan from the dealer?
We are MORE than money. It is about cooperation. Let’s try some of that.
Jessica, What web sites were you looking at??? When I look at both web sites Wings has better rates across the board on loans and savings. The only rate I could find where Continental FCU was better was their 2 year new car rate. In addition, it looks like Continental FCU uses risk-based pricing while Wings does not.
In the words of Murphy Brown:
“Okay, I see what this has come down to. Let’s just get out the ruler and get this over with.”
Roger,
You’re right. I’m sorry. I correct myself. I had picked out the specific rates that I was looking for. And when I went back and reviewed rates in general and looked deeper into detail, I was not comparing apples to apples, but instead apples to oranges. For example, I realized that I had compared different levels of Visa account. My fault.
However, in all reality, when I compare the rates to our rates, ours are not as good as Wings either. Does that mean that they have the right to come take over our credit union? If you want to go that route, then we’re looking at a financial institution that wants to be a monopoly instead of a cooperative. I don’t know about you, but to me, that sounds vaguely familiar (BOA). Tell me again, are we banks or credit unions?
Here’s something I think you will all be interested in reading. The January 2006 issue of The Callahan Report discussed the issues surrounding the DFCU conversion – issues that are clearly still relevant today.
http://www.creditunions.com/events/downloads/JanCalReport06.pdf
Personally I wonder just how well they have thought out this strategy and think the $200 is bogus.
Will they pay every member of CFCU $200 if the merger is approver, but before the merger is consummated? Would WFFCU members really like to see an expenditure of over $5,000,000 for this purpose? Will NCUA allow such an expense and it would have to be an expense and not a dividend as CFCU members are not WFFCU members.
If the payment is after the merger and done as a dividend every member of WFFCU should get the $200, upping the cost to about $27,000,000.
The merger may occur but I really doubt anyone will ever see the $200.