Thursday, January 27, 2011

Will Merger-related Share Adjustments Become the Norm?

Effective January 27th, NCUA is going to require new information to be reported in credit union mergers explaining whether a share adjustment will be paid to members of the merging credit union. While the rule does not require such share adjustment payments, these payments may become the norm.

Section 708b.103(a)(5) of the rule will require, where the net worth ratio of the merging credit union exceeds the net worth ratio of the continuing credit union by more than 500 basis points, an explanation of the factors used in establishing the amount of any proposed adjustment or in determining no adjustment is necessary.

The NCUA Board contends that where a net worth disparity exists, the merging credit union members need to know how any merger dividend, if a merger dividend is offered, was calculated. However, the NCUA Board stated that the disclosure of this information is not intended to require a share adjustment payment.

But the discussion ot the final rule shows that some within the credit union industry see it quite differently. Despite NCUA's statement that the regulation does not mandate a share adjustment payment, I suspect the case can easily be made that such disclosures will cause the members at a credit union with a higher net worth ratio to seek compensation for the dilution of their ownership interests in return for their support of the merger.

Also, the rule will require that any "merger-related financial arrangement" be disclosed. A merger-related financial arrangement is defined to include any
increase in direct or indirect compensation to board members or senior management officials that exceeds the greater of 15 percent or $10,000.

To read the rule, click here.


  1. Keith, does the disclosure have to be "at merger" or within a specified period of time "after merger"?
    if "after merger", some board and ceo's have some explaining to do. take a look at some of the "assisted" mergers that have occurred. the merging cu's capital has been eroded by more than 500 bps. why did the merging cu do that merger?



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