Magazine article American Banker

Hearing Explores Executives' Gains in CU Conversions

Magazine article American Banker

Hearing Explores Executives' Gains in CU Conversions

Article excerpt

WASHINGTON -- How much credit union executives profit when a credit union converts to a savings bank was the subject of debate at a House Subcommittee hearing Thursday.

Joann M. Johnson, the chairman of the National Credit Union Administration, testified that when a credit union converts to a thrift and later goes public, 25% or more of the equity once owned by members typically goes to directors and officers of the former credit union -- the very people who had decided to convert the charter in the first place.

That is not illegal, but credit unions ought to tell their members about the financial ramifications of such conversions, Ms. Johnson said.

"The equity of the credit union belongs to the members, and those members should be fully informed when deciding to give it to others," she said.

Ms. Johnson said that 29 former credit unions have converted to mutual savings banks, 21 of which later went public.

Scott M. Polakoff, the deputy director of the Office of Thrift Supervision, disagreed with Ms. Johnson. He testified that there are limits on management's financial benefits in a mutual-to-stock conversion and that those benefits are fully disclosed already.

Furthermore, "if members object to the management's benefits, members can vote against the transactions," Mr. Polakoff said.

The agency officials testified at a hearing on HR 3206, the Credit Union Charter Choice Act, in the House Financial Services Subcommittee on Financial Institutions and Consumer Credit. …

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