Credit union leaders continue to underscore the need for alternative
forms of capital. However, a legislative solution is unlikely, especially
since Congress, in 1998, provided the means for credit unions to
access the capital markets by way of conversion to a mutual savings
bank charter. In addition, larger banks and mortgage companies are
starting to join the fight by smaller banks to slow down credit
union growth. Since access to capital would support even faster
growth, opposition to such a move will be fierce. The US Treasury
Department is also likely to continue to oppose alternative forms
of capital for credit unions.
In contrast, six former credit unions have already raised over
$100 million in capital from member approved offerings; and several
more are expected to tap the capital markets in the near future
with offerings exceeding $125 million. The additional capital would
support asset growth to over $4.5 billion, making a significant
positive impact in the communities served by these institutions.
For example, $530 million Rainier Pacific (WA), which converted
from a credit union in 2001 recently announced plans to raise $80
million in a depositor offering. Last August, $500 million Pacific
Trust Bank raised over $60 million in an offering, and recently
its stock has traded at over a 50% premium. The additional capital
will allow these two former credit unions to better serve their
communities with asset growth to the $2 billion range. California,
Texas, Maryland, Illinois, Washington, New Jersey, and Pennsylvania
are states from which former credit unions have successfully raised
regulatory capital from depositors.
Banks generate strong interest among depositors and on Wall Street
for their capital offerings. In contrast, credit unions, like many
business cooperatives, are new and largely unknown and unproven
participants in the capital markets. In the unlikely event alternative
capital ever becomes an option for credit unions, capital offerings
are likely to be difficult to structure and more expensive than
bank offerings. Credit unions will be forced to pay premiums for
capital, much like the premiums they are forced to pay in order
to attract deposits.
Despite liberal state credit union regulations, two credit unions
in Washington State ($570 million Columbia Credit Union in Vancouver
and $275 million Washington's Credit Union near Seattle) just announced
plans to convert to the mutual bank charter, bringing the total
to four making the charter switch. In May, $140 million CU of the
Pacific completed its conversion to a bank. In a press release addressing
the conversions, John Annaloro, Washington Credit Union League President
and CEO said, ''these conversions may represent fundamental
weaknesses in the overall national credit union charter, which needlessly
restricts capital accumulation and business lending.''
The process of going from a credit union to bank and gaining access
to capital involves several steps which involve board of director
and management education, feasibility assessment, and charter changes.
As advisor to the majority of institutions converting to a bank
charter (including the recent applicants) and those accessing the
capital markets, CU Financial Services and its ''Conversion
Network'' is in a unique position to help credit unions
make this dynamic transition with strategic, business, CRA, and
public relations assessment, modeling and preparation and transition
consulting including training, networking opportunities, merger
and acquisition help, and growth strategies.