Successful Credit Union Mergers Dependent on Several Factors

NASSAU, Bahamas – Credit union mergers are neither bad nor good, opines Bob Hoel. It depends on the circumstances surrounding the merger. That’s the core message the president of the Filene Research Institute delivered to the more than 1,000 delegates to the World Council of Credit Union’s (WOCCU) Seventh Annual Leadership Conference held August 1-4 in his session on “Credit Union Mergers: Whose Best Interests Are We Serving?” From 1973 to 1993 the number of credit unions declined by almost half down to 10,000. Most of the reductions were caused by mergers. However during the same period credit union membership almost doubled to a little over 80 million people. In 2003 there were 267 mergers and another 91 happened in the first trimester of 2004, Hoel said. Negative reasons for mergers are financial problems, leadership changes such as the unexpected death of the manager, or a change in the membership base such as a sponsor downsizing staff. The positive reasons for mergers, according to Hoel, are economies of scale such as branch reductions, economies of scope or an attractive offer is made that allows the credit union to expand its services and products. If mergers are helpful to the credit union, how do they affect the members of both the acquiring and the target credit unions? Filene’s research overall has demonstrated that overall they strengthen member services. However, “mergers are never pain free despite parachutes, perks, and power.” Hoel said that all mergers cost more than originally thought. The headaches of merging data systems are legend. Culture conflicts between the two organizations usually emerge and the participants need to work hard to maintain both identity and local support. From the target credit union’s (TCU) perspective, the best chance of success is when the acquiring credit union (ACU) is much larger with a strong loan portfolio. Hoel said a credit union’s ability to run a successful loan portfolio is responsible for much of a credit union’s overall success. It doesn’t have to be a large credit union offering mortgages, but credit unions specializing in car loans, signature loans or home improvement loans have built their niche into a solid base. Another factor predicting merger success is that there is a big difference in the product offerings by the ACU compared to the TCU. However, there should only be a small difference in the loan-to-deposit ratio. An ACU also stands to be successful in a merger if it’s had previous merger experience, Hoel said. It also helps when both credit unions are community charters, he added, because they may already have overlapping fields-of-membership. If credit unions do not want to merge, there are alternatives. For example credit unions can create a management co-operative such as the Green Bay CU Center. Each credit union participant maintains its own board, but has a representative on the co-operative board. A business can provide total management services to credit unions while the credit unions maintain their own identities and boards. This can be either long or short term. Likewise, a l carte services can be selected, allowing credit unions to share IT or human resources services saving the need for staff and equipment investments. In some other cases, large credit unions will provide the services to smaller credit unions. Although it has not been tried to date, Hoel believes from recent research that franchising would work for credit unions much as MacDonald’s does for fast food. By providing economies of scale for data, education, products, advertising and standards, credit unions would not be reinventing the wheel. Like franchise owners, they would still maintain some local autonomy. -