How Much Would You Accept to Surrender Your CU Membership?

The Nationwide conversion confronts us -- can a price be placed on credit union membership?


What is a credit union membership worth? Can you put a price on it?

I didn’t think you could, but Nationwide did. They even found the right number. As a result of converting to Nationwide Bank, they have paid out 15.26% of total deposit account balances as of March 31, 2006 in one lump sum to the former members of Nationwide FCU in exchange for the members surrendering of their cooperative ownership. The credit union has merged into Nationwide’s bank, and the former members are now customers.

The member must have thought 15% on their money is an acceptable price for giving up their ownership? I didn’t, but I wasn’t eligible to vote.

One trouble with discussing the price of a membership is that the very act of discussion implies there is an acceptable price. If not 15%, then what about 25%, or 75% or 375%? All you have to do is keep jumping the numbers until someone says “Yes.” As the saying goes, everyone has his price.

But if that is the case, then credit unions are as good as finished. All you have to do is gather up enough money to buy out all the members. Cooperative financial institutions: Gone.

Can’t Do the Math
Nationwide’s offer boiled down to this: Take this money now and give up any benefits you would enjoy from membership/ownership in the future. Such an offer is always tempting. It’s present value versus future value. How many lottery winners have you heard of who say, “No I don’t want the money in a lump sum; I’ll take the payout as you suggest over 20 years”? It doesn’t happen. Human nature says I want what I deserve now.

At least with the case of lottery winners, if they care to, they can do the math. They can calculate a total payout if offered over 20 years. The more sophisticated of them will be able to calculate future value based on estimated inflation. Maybe the more diligent of them will forego a lump sum payout and select the annuity.

But credit union members should not do this. Arguably you could calculate a value of below-bank loans and above-bank savings rates. You could do the same with credit cards, and with free checking, and lower fees.

But what is the monetary value of excellent service? Or of management making your financial well-being its top priority? Or of working with people to help other people?

These are intangibles, but they compose a good deal of value a person receives as a member/owner.

Our Best Defense
Our best defense -- should we see more of Nationwide-like offers -- is an ironclad demonstration of the value principle we sometimes talk about but often skirt. We have to demonstrate to ourselves and to our members that being a member/owner in a credit union is, in fact, priceless, that no amount of money could replace it.

Everyone has to consider: If there is a buyout price, then the whole movement could be bought out. If that is the case, then there is no cooperative, self-help, democratic, not-for-profit financial services industry. It will all be gone over to making money for the stockholders; any pronouncement of concern for the customer will merely be a cynical appeal meant merely to get them in the door and a hand in their pockets.

Credit union members lose; non-credit union members lose; America and the world lose.

But these are intangibles in an increasingly hard-nosed world. What can we do to help us through these troubling times?

First, if credit unions are to be absorbed, credit unions should be leading the charge. We need to have a way to buy our own children back.

Second, we ought to consider a super credit union holding company. It would acquire credit unions and then let them operate as they see fit, but out of danger of purchase by private entities.

Third, we should think about a new Federal Credit Union Act. If we can’t defend ourselves from outside buyers, what does that say about our charter? We can’t raise capital, though others can. That might have been all right when the wolves were kept out of the pasture, but now the gates are open.

Our first and best defense is an informed membership that values its ownership and participation above a fist full of money. Our second ought to be some mechanisms by which we can fend off purchase and save the cooperative financial services industry for future generations.

For more articles and thought-provoking insights from industry experts Bucky Sebastian, Chip Filson, and other key players, subscribe to The Callahan Report.




Feb. 5, 2007


  • I agree that the Wings/Continental situation infuses the points raised in Sebastian’s earlier op/ed with renewed relevance. His conclusions may be faulty, but he knows an important issue when he sees one. The more recent Wings/Continental unsolicited merger proposal is groundbreaking in nature and one of its greatest positives is that so many within the credit union industry are thinking about and talking about the important related issues. And believe me, there are lots of related issues. There is an increasing sense of urgency and need for change in fundamental strategy that can’t be ignored. As a result, every credit union must engage in no-fear, taboo-free strategic thinking in 2007. The do-nothing option is gone forever. In my merger consulting business, I have spoken with literally hundreds of CEOs from all sizes of credit unions. Most will tell you the industry needs to consolidate, but in the same breath they will say they want to be the surviving credit union. That means friendly mergers will remain extremely rare. That leaves regulator-driven mergers and other forced situations, including so-called “hostile mergers.” That’s a reality, not spin.
    Marvin Umholtz
  • In recent weeks, this topic has become more timely than ever. Highly recommended.
    Ron Bensley, Jr.
  • I can see it now - getting your auto loan 6%, getting your savings account 4%, having a credit union membership - PRICELESS. Thanks for reminding us... Now how do we better inform our members?!?
  • If the value is there, why have over 50% of CU's had negative membership growth the last two years? The industry lacks "visionaries." Now, for full disclosure, get the vocal "idealists" to disclose their W-2's. You will then see why they are so vocal. We already have a million-dollar man in Washington!
  • The cooperative business model is superior primarily in the minds of its promoters and an idealistic few. The US credit union application of membership produces the same value as being a member of Sam's Club or American Express. The local country club or health club does a better job of capturing the essence of a cooperative.
  • Yes, but there is another side to this equation. There are some credit unions who have forgotten their primary purpose of people helping people, and are now operating as if their members are customers. These few credit unions need to realize that they are their own worst enemy and will contribute to their own demise. All they need to do to turn it around is remember why they were formed in the first place. Then adopt sound business practices that will continue to earn member loyalty.
    Tim Bowen
  • Mechanisms? How best to inform? How best to defend ourselves in DC? I truly hope these aren't our primary go-forward talking points. Our primary defense is "over-the-top" value creation. We need to be honest in answering the we offer a significant competitive advantage (rate, service, community appeal) in our markets? And, no, a 25bp rate benefit vs the market's avg is not all that significant anymore.
  • The gates are open...and the wolves are in the pasture....a new FCA may need to be enacted, one that would allow all credit unions to generate additional capital...if merger and charter conversion continues, then cooperatives will be gone. We need to give smaller, community chartered credit unions the tools they need to compete - primary of which is the ability to generate secondary capital!
    steve bentley
  • You can't control the whole world. Can you come up with a new drum to beat for 2007?
  • The author states, "First, if credit unions are to be absorbed, credit unions should be leading the charge. We need to have a way to buy our own children back." By that, does he mean that CUs should be active in the takeover market? There are many examples of poorly run credit unions or those with exceedingly high capital that are candidates to be absorbed.
  • Without the pressure that credit unions put on banks and other financial institutions, what would be the incentive for them to offer lower rates and fees? A good example can be found in the world of commercial airlines. Low-cost carriers like Southwest who do an excellent job of focusing on their strengths and executing on well-honed strategies force other carriers to be more competitive. Each credit union needs to determine how it can be most relevant to its membership and focus relentlessly on delivering the value that resonates with its members. That is our strength as individual credit unions and as a movement.
    Linda Mackey
  • Great article but the fact remains that there is not a credit union in the industry where a majority of the members would not vote in favor of getting 15% on their money. We are for sale and we have yet to convince our membership that being an owner is worth more than 15%. Only in the eyes of those inside the movement is this value realized.
  • To speak to the authors last three points: Nationwide is a mutual holding company. It is a consumer owned institution. The OTS charter already provides the "super" holding company mechanism and access to secondary capital for cooperatively owned depositories. Secondly, my credit union is not the “child” of the author. We are an independently chartered enterprise and have not appointed him as a spokesman to “defend” “inform” or “fend off” anything. Our credit union’s purpose is not to “save the cooperative financial services industry for future generations” as he implies. It is about our member-owners, today. Frankly, I am more concerned about defending my credit union from empire builders, like the author, who wants to “lead the charge” to absorb credit unions. His institution is already merging credit unions from hundreds of miles away. At the rate of one merger a day the “wolves in the pasture” are other credit unions.
  • Credit unions truly need to take Bucky's concerns to heart. Too many CUs have drifted towards a business model and governance style resembling that of banks. Recent lawsuits regarding DFCU Financial and Columbia Community CU have exposed the sober truth that, in terms of the letter of the law, CU members-at-large appear to have "no rights... greater than those of a bank depositor". It will be hard for a CU to fight off a takeover attempt iinvolving a dividend buyout similar to Nationwide's, given that an acquirer will certainly remind "member-owners" that recent court decisions have been unfavorable towards the "cooperative, self-help, democratic" aspect of CU governance.
    Ron Bensley, Jr.
  • The author and readers of this essay should also consider the following questions: How many credit union members join their credit union to attend the annual meeting? How many members join so they can vote in board elections? How many members join in order to own a non-redeemable piece of the credit union’s equity? How many members join because of a credit union’s organizational and governance structure? Those pundits who urge credit unions to differentiate themselves in the marketplace by promoting “ownership” and “democratic control” better look closely at this real life “reality check.” The value of a credit union or any federally insured depository is not in its governance structure, but in what it does every day for each and every customer, as well as for the larger community. A credit union is not an esoteric concept; it is a very real financial institution serving real people in real and tangible ways. Let’s remember that people choose to do their banking business at a credit union because of first-rate products, good pricing, excellent personal service, convenience, an understanding of their needs, and fair treatment. For the vast majority of consumers, structure, governance, voting and control don’t matter at all.
    Marvin Umholtz
  • Show me a credit union that pays a savings rate that competes with the highest banks in the nation. Look at CU fees are no less than most bank fees these days. It is easy to beat most CUs if you shop around for loan rates. Where is this return on investment to members that you are talking about? I sure don't see the advantage of holding on to a membership. Look at the earnings the CU retains and the money going into expansion. The large credit unions sure aren't putting everything they are earning back into member's pockets or their rates and services would easily outshine banks. Maybe it is time of CU's to take a good long introspective look at themselves and to see what they have become.
  • Common bond. When we gave that up -- when we cheated on our corporate sponsors (those folks that volunteered their time to start a financial co-op) we killed the one thing that made us unique. Now I know many credit unions lost their sponsor, had to cheat, etc. BUT, many did not. They chose to "expand their field of membership" to better serve?? We used to be a club. A cool place to bank -- because it was just us teachers, or postal workers, or (insert corporate sponsor). We had the shame of borrowing. You really WERE borrowing your co-workers money so you always paid your credit union first. That's gone. Now we'll let a new member sign up at a car dealer, pay their $5.00 for them and never ever interact with them. Sadly the structure doesn't matter because WE said it didn't matter. Growth matters. Bigger isn't better. Better is better.
    Denise Wymore