Thursday, June 10, 2010

Royal CU Awaits NCUA Approval on Bank Branch Sale

Royal Credit Union (Eau Claire, WI) in November 2009 entered into an agreement to purchase 11 branches from AnchorBank along with deposits and loans. Here are the links to AnchorBanCorp Wisconsin's 8K filing and Press Release.

Royal Credit Union will assume approximately $177 million in deposits and receive a corresponding amount in loans, real estate and other assets. The branches involved in the transaction are located in the Northwestern Wisconsin communities of Amery, Balsam Lake, Centuria, Menomonie, Milltown, New Richmond, Osceola, River Falls, St. Croix Falls, Somerset and Star Prairie. The depositors at these branches will become members of Royal Credit Union when the transaction is completed.

This deal is still awaiting regulatory approval from NCUA.

In my opinion, this transaction is a no brainer and should be approved by NCUA. But I also believe that such transactions should be a two way street.

It would be hypocritical for the credit union industry or its regulator to permit a credit union to buy a bank or bank branches along with the deposits and loans; but to restrict the ability of banks to do the same.

I know that some within the credit union industry will argue that a bank buying a credit union or credit union branches is not the same as a credit union buying a bank or bank branches, because there is a need to protect the interest of the credit union members. But as I wrote in a January 22, 2010 post,

There are ample protections for members, and members are more than capable of determining what is best for them financially.

Maybe the regulatory hold up in approving this transaction is that NCUA fears that it is opening Pandora's Box.

But what's good for the goose is good for the gander.

1 comment:

  1. Keith, wrong again. I know you econ guys aren’t too well trained in regulations and laws, so I will try to help with a painfully way-too-long lesson. The investment in your education may also be necessary because if this crisis goes on much longer, you may need a credit union employer.

    Buying bank branches is easy, but R.E. is considered a non-earning asset and subject to low statutory balance sheet limitations (Value of R.E. as percentage of total CU assets.) Transferring bank savings accounts requires matching depositor eligibility with a credit union’s field of membership, and/or acquiring variances in emergency situations. Bank loans, however, could be toxic. The ancient credit union elders speak of them as potential contagions, and have chiseled special commandments about holding them into the sacred stone tablets of law and regulation. Faithful credit union followers are told before acceptance, the dark crevices of the bank loan files need to be reviewed in special rooms by special federal examiners who probe for naughty things while wearing rubber gloves.

    The problem is that loans from the bank side are considered foreign assets, and therefore these alien-assets-from-elsewhere need to have their papers presented and approved by the credit union federal regulator before allowing assumption and co-mingling. Credit unions and banks have different regulators, different federal deposit insurance funds and different stewardship standards for the operation of these insurance funds.

    Any reasonable Ph.D. educated economist (PEE, or PHDEE?) might think what’s the big darn difference (BDD) between NCUA and FDIC, and why can’t our federal Agencies just get along—at least so our institutions can do asset sales & swaps (ASS) back and fourth? Does NCUA worry that FDIC insured bank assets are unholy, unworthy, of doubtful quality or otherwise unfit for credit unions? The answer may be “Yes”. Delinquency rates and non-performing assets ratios run twice as high in FDIC institutions, the current banking crisis seems to stem from unchecked risk taking by bankers, FDIC’s current negative equity is thought to be indicative of past oversight shortcomings, and in the not so distant past there have been actual technical bankruptcies of bank insurance funds BIF and SAIF. Most banks only do retail part-time. Bank stuff, not so good; or only half as good? And/or look at the current criticism of all institutions regulated by OTS, such as WaMu and IndyMac and Countrywide Bank. Where did those FDIC insured bank assets go? Reasonable caution is warranted. The ancient but wise credit union elders (ABWCUE) were right.

    It’s not a bank branch issue; it’s what’s sometime found inside the branches. It’s a standards problem. Credit union standards are higher than bank standards. Credit unions’ regulator spends the time to review foreign assets because all credit unions share joint responsibility for insurance fund losses—rather than running to the American taxpayer as in the imaginary banker-world where all losses seek to be socialized to further enrich stockholders. Instead of shooting semi-veiled disparagement toward NCUA in the Royal CU/AnchorBank matter, it might be better for us all to join together in the spirit of universal love, to count—then address--the Pandora’s Box of problems inside FDIC.

    PS. As for banks buying CUs, perhaps if you ask nicely the elders of the IRS (EOTIRS) can give you an equally-way-too-long dissertation about the principles and spirit of United States tax codes in the conversion of tax-exempt, charitable and philanthropic organizations into for-profit endeavors, as well as the unallowable capture of equity or reserves previously earned and set aside for a specialized tax-exempt purpose.



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