Why a Bank Merger is Often Bad and a Credit Union Merger Often Good

Ed Callahan and Bucky Sebastian discuss that struggling credit unions should seek merger partners sooner rather than later so that members are not lost to the movement nor resources wasted.


This article originally appeared in the March 2005 issue of the Callahan Report.

Mergers are like storms. If we don't see one at the moment, we still wouldn't bet one isn't far off. This is true both of banks and of credit unions.

Let's look first at bank mergers, which are considerably different from credit union ones. Bank mergers are meant to be victories for stockholders, immediately for those of the acquired bank and presumably in the future for those of the acquiring bank.

Bankers do not really consider the customers at all, or service to them. At best bankers hope or presume the post-merger customers will keep coming in droves. In Florida, banks are started just to be sold. Ten or so investors put in a million dollars each and work for a few years to build branches and attract customers, all with the purpose of looking attractive to an acquisitive out of state bank. An out of state bank comes in, buys the small bank and pays off the investors. These investors, of course, have a celebration. The media and the public treat them like stars - "You sold to them! Wow!"

Service and Value Rather than Money

Credit union mergers in high contrast have always been viewed with ambivalence. A merger was something a regulator imposed, or stemmed from a credit union being too weak to stand on its own. The movement has never felt comfortable with mergers.

But a credit union merger should be the polar opposite of a bank one. Its success or worth should be measured not in stock prices or the like but in value to members. If a credit union merger enhances value to all members, then it is good for both credit unions and the credit union movement.

Consider again a bank merger. A bank in play to be acquired considers bids from other banks, and most often accepts the bid offering the most money. But a credit union needs to use opposite criteria. It should in effect be saying to potential acquirers: "Show me how you can best increase the value to my members." Here might be a list of its questions: How will you give the best service? How many branches do you have? What are your fees? What electronic services do you offer? What has been your member satisfaction ranking over the last 10 years? What is your philosophy?

Thus a credit union looking to be merged might draw up a merger template, one that potential acquirers would fill out. This makes, of course, for more orderly decision making. But also, when the decision is made about which credit union to merge with, the decision is going to make sense to everyone - regulators, the media, members in the credit unions -- who look at the template answers.


There is the issue of paying departing staff of the acquired credit union, especially the CEO. The acquiring credit union might pay a premium above salary if the acquired credit union CEO is going to be out of a job. This might seem like an undue expense, but it rather represents a good investment in the future for the acquiring credit union. If the coming merger will create economies of scale, efficiencies and better service for both member groups, then a payment to departing CEO and staff is a small price to pay. It is a short-term payment for gaining long-term value to members.

(It might also be said of smaller acquired credit unions that senior staff have over the years created value and they should be allowed to carry some of it away with them, especially considering that they likely have been only modestly paid to that time and modestly vested in any pension account.)

Sooner Rather than Later

In any event, good credit union mergers should be celebrated: They make for a better, stronger credit union movement. In good mergers, both the acquired membership and the acquiring membership are better off.

In fact, it might be said that many mergers should be done earlier rather than later. A struggling credit union is going to lose members, ones who likely will never come back to the movement. And a struggling credit union is going to waste resources. Better then to merge early. The movement will not lose members, but rather increase the value proposition to those members. Economies of scale and efficiencies will be realized sooner rather than later.

So credit union mergers are not to be dreaded. Rather they should be seen as a means of improving member service and thereby making a stronger, healthier credit union movement.




June 6, 2005


  • Right now it is more dread, as I had plans to do some work around my house and now I am told that I cannot take my money out for possibly 6-9 months while waiting for the merger. This is not acceptable.
  • This article assumes that one Credit Union is in "trouble" when in today's marketplace the economies of scale are allowing strong Credit Unions to merge to better compete and thus provide a higher level of service to their combined membership at better prices.
  • Bucky always has an insight that makes you think. What he says here is true, but outside traditional credit union thinking. If this industry is to continue to grow, we need this type of thinking. Too many credit unions rely on the regulators to help them make decisions.
  • SO, Bucky and Ed - I am sure you could suggest some good merger candites to inhaled the capital of my credit union - maybe GTE or Patelco - give me a break your pontificating is too much
  • The article is right on track and reflected many of the issues we faced on a recent merger. I was unable to use the "printable" option??? It just kept going to a blank page. All the printable options on the other articles worked fine. The article is right on track and reflected many of the issues we faced on a recent merger.
  • Bucky and Ed are right on target.
  • If a credit union is merged as a result of mismanagement and problems on the balance sheet, the above argument is valid. However, healthy credit union mergers will lead to less competition and a negative consumer impact in the future
  • Someone posted this article on my blog site: ilovedcblog.blogspot.com in responce to an attempted hostile merger between credit unions. Interesting article, but I don''t agree that credit unions are uncomfortable with mergers.
    Stephanie Willson