NASHVILLE, Tenn. — A
That was clearly on display Monday at the Independent Community Bankers of America’s annual convention, as more than 60 community bankers attended a session where a prominent banking lawyer made the case that banks should turn the tables and start buying credit unions.
Richard Garabedian at Hunton Andrews Kurth readily admitted that the idea is highly speculative. While more than 20 banks have been sold to credit unions since 2016, it has been years since a bank bought a credit union, and there’s no precedent for a stock-owned bank doing so.
Still, a process and framework for credit union sales to banks exists. While fraught with difficulties, including potential resistance by the National Credit Union Administration, now might be an opportune time for small banks to explore the possibility, industry experts said.
Smaller credit unions are experiencing the same regulatory and market pressures that have pushed scores of community banks to sell themselves, Garabedian said.
The NCUA, the credit union industry’s federal regulator, “is approving about 20 mergers a month — month-in and month-out — but they’re all credit union-to-credit union," Garabedian said. "There’s zero economic value for the [members]. They get nothing.”
An acquiring bank, however, could offer a number of potentially tantalizing incentives to a credit union, including the prospect of members receiving some portion of the consideration, Garabedian said.
A sale could also lead to some form of compensation for directors. More than 60% of the roughly 5,400 credit unions operating at the end of 2018 were federally chartered, and the Federal Credit Union Act bars payments to directors.
Chris Cole, the ICBA’s senior regulatory counsel, said a divide is growing between small credit unions and the industry’s larger institutions, which a bank acquirer might be able to exploit.
“There’s absolutely an opportunity,” Cole said Tuesday. “Smaller credit unions are beginning to feel like larger institutions are predators, and I think that’s dividing the industry.”
Still, “there are lots and lots of obstacles” that could discourage banks from pursuing such deals, Cole said.
Unlike deals between banks, the process involving a credit union would be played out in public, with disclosures required 90, 60 and 30 days before credit union members vote on a sale. The NCUA's rules make it easy for opponents to organize, and the agency would likely require a prominent disclosure warning members that the acquiring bank might pay lower rates on loans and deposits.
Acquisition rules require participation of at least 20% of a credit union's members, Garabedian said. A majority of the voting members would have to back a deal for it to go forward.
While it would be challenging for a bank to buy a credit union, Garabedian said it is doable for a bank “that’s careful, meticulous and sensitive" to dealing with the NCUA.
“I’d structure things as neutral as possible,” he added. “Hopefully, they’d be no closures or layoffs that could be used to encourage opposition.”
An NCUA spokesman said the agency's procedural requirements are intended to ensure that credit union member owners are provided with full information to make an informed decision.
For William Russell Carothers II, chairman and CEO of the $242 million-asset Citizens Bank of Winfield in Alabama, the idea of buying a credit union is intriguing, but the obstacles are daunting.
“I don’t see how they can,” Carothers said, referring to interested banks.
The conclusion left him frustrated.
“There’s no fairness in the matter,” Carothers said. “I paid almost $1 million in [taxes] last year. The local credit union didn’t pay any. I’ve talked to people about it until I’m blue in the face, but nothing gets done.”
