CUs Paying Up in Bank Deals

At the halfway point of 2019, the number of announced deals by credit unions acquiring banks has surpassed the number of announced deals for all of 2018, according to S&P Global Market Intelligence.

In some of these deals, credit unions are offering a higher price than other financial institutions.

For example, the price of the deal between Verve Credit Union (Oshkosh,WI) and South Central Bank (Chicago, IL) was reported to be above the going rate of 1.5 times book value for Chicago community banks.

There are several reasons why credit unions can pay a higher multiple for a community bank versus other financial institutions.

The credit union tax exemption gives credit unions the ability to offer a higher price for community banks.

But also, credit unions are not subject to shareholder pressure.

If a bank overpays in an acquisition, it will see the market value of its stock drop. However, this is not the case for credit unions, which do not have shareholders.

I suspect most credit union members are not aware that their credit union is acquiring a bank or how much their credit union is paying bank shareholders.

If the members did know, they would probably wonder why this money is not going to them.