A Bank-CU Deal? Just Asking

By Mullins, Luke | American Banker, March 30, 2007 | Go to article overview

A Bank-CU Deal? Just Asking


Mullins, Luke, American Banker


For all the convergence and consolidation in financial services, there is one kind of deal that so rarely gets mentioned even as a possibility that some may wonder if it is even an option: Can a bank or a thrift buy a credit union?

The short answer is yes - there are no laws or regulations specifically precluding such a transaction. In December,Nationwide Financial Services Inc.'s thrift unit acquired acredit union affiliated with the insurance giant, and in 2001, Thrivent Financial Bank, a Wisconsin unit of Thrivent Life Insurance Co. of Minneapolis, acquired two affiliated credit unions.

For community banks struggling with increased funding costs, acquisition of a credit union, at least in theory, could provide a solution because credit unions generally have a solid base of core, low-cost deposits.

But industry observers say that any bank attempting to acquire an unaffiliated credit union would face an uphill battle, as scrutiny from the National Credit Union Administration, opposition from credit union supporters, and the lack of a clear regulatory path to approval would make such a transaction difficult to complete.

"It would be very controversial," said Bucky Sebastian, a spokesman for the National Center for Members Trust, which provides financial and legal support to groups that oppose credit union conversions.

The idea of a bank acquiring a credit union moved to the forefront this week in a story in a credit union newsletter about the decision by directors at Continental Federal Credit Union to reject an unsolicited takeover bid from the $1.6 billion-asset Wings Financial Federal Credit Union of Apple Valley, Minn.

The story, which appeared in Monday's CEO Report, included mention that an attorney for a group of bankers had contacted Continental's chief executive March 15 to express interest in acquiring the $178 million-asset El Segundo, Calif., credit union.

The report did not identify the lawyer or the "banking interest" he represented, and Continental's CEO, Tom Glatt, has not responded to American Banker's requests for comment.

Richard Garabedian, a Washington lawyer who has helped a number of credit unions convert to savings banks, said that he believes the Nationwide deal, and the report that a banking group is interested in Continental Federal, "have certainly opened up certainly more possibilities" for the future.

"It's got people thinking about these types of transactions, where perhaps they wouldn't have five years ago," said Mr. Garabedian, a partner at Luse Gorman Pomerenk & Schick PC in Washington.

But even though bank/credit union mergers technically may be legal, he said there are lots of unanswered questions about the process. Among them: "What kind of policy parameters would the NCUA impose on such a transaction?"

The NCUA has strict rules for converting credit unions to thrifts, and critics of the agency - including bank trade groups and some lawmakers - have said they believe the rules are written to discourage such conversions. …

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