July 22, 2013


  • I think the most insightful part of this article is the statement, " “If a credit union waits until regulators are forcing them to look for merger partners, they’ve probably waited too long to be a great fit for Pathways,”. NCUA's lack of prompt and corrective action is going to result in a big increase in liquidations. Credit unions are very resistant to mergers. The "healthy" credit unions that merged into Pathways are an exception to the rule. The rule is that mergers happen when there is no other alternative. After years of negative member growth, after years of negative net income, after years of share and loan losses, then on the brink of failure, merges happen. The main criteria for prompt and corrective action is the capital ratio. Yet many credit unions with high captial ratios are no longer "going concerns". They have no franchise value. A credit union that has negative member growth for three consecutive years is no longer meeting member needs. A credit union that is no longer relevant to the members has no franchise. That means it also has no value to a merger partner. The cost and effort of doing a merger is signficant and the risks are high that hidden problems such as the failure to comply with laws and regualtions can result in big clean up problems. A merger will cause the merging credit union to set aside other priority projects while it completes the merger. Therefore credit unions like Pathways will be very select in choosing merger partners.
    Henry Wirz