On Bank Conversions, Each State Is `Unique,' say AACUL Panelists

RANCHO CUCAMONGA, Calif. – When it comes to dealing with the emerging issue of mutual bank conversions – popping up this year and in 2004 in several locales – League chief executives agree on one thing for sure: each state is unique in how laws treat MSB structure. And they also are of one mind that the state-by-state political and financial climate varies widely prompting fierce internal debates among boards of directors on exactly how to proceed. “I do think the process we followed on Lake Michigan was a good one, but what occurred in my state may not apply elsewhere and so Leagues have to respond to each situation as they arise,” declared David Adams, president/CEO of the Michigan Credit Union League. Adams, a member of a newly created panel created by the American Association of Credit Union Leagues to study the conversion dilemma and develop strategy, was making reference to membership rejection last December of an attempted conversion of Lake Michigan CU in Grand Rapids. Adams, like several other League executives on a 13-member AACUL panel which includes staffers from CUNA and CUNA Mutual, said he had not heard of new conversion bids in his state admitting, however, that he might not know of them immediately even if they did surface. David L. Chatfield, CEO of the California/Nevada Leagues and vice chairman of the AACUL panel, known as the “AACUL Cooperative Business Model Task Force,” acknowledged that the state charter in California is a healthy one which explains why conversion attempts have been rare in his state in recent years. “I think we’ve had two in the last five years, Kaiser pick up and Pacific Trust,” recalled Chatfield noting that both former CUs were already drifting from their CU origins with neither belonging to the League. “I remember getting into a rather interesting debate at a CUES conference with Hans Ganz, a former savings & loan regulator, who really wanted to do lots of real estate and run a savings and loan and now does exactly that,” said Chatfield referring to the current and outspoken ex-CU executive who is now president/CEO of Pacific Trust. Pacific Trust, located in a San Diego suburb and which converted to an MSB in 2000, “once had a high percentage of real estate which was more than the NCUA liked,” said Chatfield, a factor which helped trigger the switch to a MSB and later a stock institution. Regarding the AACUL panel, Chatfield said its mission will be positive in tone seeking to “remove the barriers” that impair the CU charter as the task force tries to confront the motivating factors making the MSB structure so appealing to some CU managers and their boards. Within the state Leagues, “we have two groups – one that wants us to do something to stop this movement and the other is `hey it’s none of your business, it’s between credit unions and their members,’ ” said Chatfield. “ Somewhere in the middle is where positive action” needs to be taken, advocated Chatfield, who earlier this month announced his retirement as head of the California/Nevada Leagues effective April 1, 2006. Chatfield said he was probably picked as vice-chairman of the AACUL task force because of his 40-year career in the industry as he alluded to the Pacific Trust/Kaiser history. The chairman of the panel is Michael Mercer, president/CEO of Georgia Credit Union Affiliates, which also has had two conversions in recent years. Chatfield said makeup of the task force, created in January and which is to report with recommendations in July, is aimed at bringing a representative cross-section of views from state Leagues in both populous and rural states where MSB concerns may be on the minds of many CU execs but have not been on the front burner. Moreover, the panel’s diversity should be a positive in sorting out differing state laws on MSB conversions considering in Texas, members can approve a switch by a simple 50% majority but in Michigan, it requires a two-thirds vote. In Alabama, Gary Wolter, head of the Alabama League, said there have been no conversion attempts in his state but the League wants to “be pre-emptive” in its approach. Guy Hood, CEO of the Florida Credit Union League, said he was “mildly surprised” that he is on the panel and yet he does have experience with the issue in light of dealings with the $170 million Sunshine State CU of Tallahassee which filed for an MSB charter and then withdrew its application. (see related story on page 6) “We do need to do whatever we can to enhance the value of the credit union charter as we look for the options to serve consumers,” said Hood. “We need to find its shortcomings and where it is weak,” the industry needs to pursue fixing the problem. Agreeing with that view, Chatfield said the nation’s banking structure continually gets modernized but CUs remain locked “in an antiquated system” and environment and that is an issue that must be addressed immediately. -