Hostile Takeovers or Hostile Occupations? The Merger Challenge for Credit Unions

Wings' wake-up call to the industry has ignited emotions, provoked comment, and resulted in league resolutions in opposition. While the prevailing sentiment is that hostile takeovers are inconsistent with the cooperative credit union model, have critics addressed the key issue raised by Wings?


About ten years ago a Stanford professor opined that credit unions might not survive because of the absence of market pressure on CEO’s and boards. Co-ops are not focused on financial performance as the number one priority, but member service. This is OK until a credit union looses its competitive edge and is unable to change. Financial markets, this professor argued, create incredible efficiency and encourage quick action by management when performance is lagging. By design credit unions are somewhat insulated from these market forces.

Through complacency or a lack of understanding by boards, many credit unions are going through a very slow, drawn out business death spiral. The credit unions are not unsafe as capital levels are probably rising. But are they sound?

One CEO commenting on the Wings effort said that “It has given license to Leagues and others to put poison pill barriers to hostile takeovers. Well maybe we need a few hostile takeovers. The alternative is hostile occupations-the board and management hold onto a credit union for their own reasons, rather than seeking alternatives that will provide members with the level of service they need.”

Today members vote with their feet. Rather than try to replace a board, unhappy members will just move their account to someplace that offers them what they want. Over 55% of all credit unions lost members in 2006.

So the critical question is how does the system respond to underperformance? Is the industry in fact taking an anti-member position in reaction to the Wings effort?

There is no doubt about the anger, maybe fear, in the reaction by most credit union organizations to Wings’ effort. Many fiercely opposed the idea that someone would even try a hostile takeover. The initiative disrupted credit union tradition.

If Wings' approach is not the best way, then how does the system challenge its own underperformance? Who will rock the boat to force boards and management to do the right thing for members?

Chip Filson will moderate a discussion of the merger climate including recent trends and three case studies of successful mergers that increased member value. Part of the online learning event will be a discussion about merger tactics. When must members be apprised of a merger offer, even if not supported by management and board?



April 30, 2007


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  • A merging credit union deserves to get the best deal from the continuing credit union that it can, including member payouts and executive compensation and/or severance. To do less would be shirking the board’s fiduciary duty to look out for the best interests of the credit union, its membership, and their future. Regardless of these credit union leaders’ influences or motivations, it is their job to decide on their merger partner and the details of the merger plan and agreement, not NCUA or the trade associations.

    As some pundits have observed, many credit unions are in the process of “self-liquidating.” The industry would be better served if these credit unions consolidated their assets and members with larger, financially healthy, full-service institutions. To ensure an industry-saving vigorous rate of consolidation, merger incentives are essential. This deal-making factor is especially needed if NCUA intends to obstruct the alternative tactic of unsolicited or so-called “hostile takeover” mergers, as appears to be the case.
    Marvin Umholtz
  • Excellent points. during the Wings situation, I was arguing these same points. To my mind, the Continental members were MORE informed about the merger process in that situation then the members of most credit unions that eventualy merge. By bringing the members into the mix, I argued that Wings was actually making the process more democratic.