LEVITTOWN, Penn.–“Urgent public questions” need to be asked related to the merger of a $69-million credit union in this state as it seeks to merge into a CU in Illinois, according to one analyst, who said the members are losing nearly $9-million in “community built capital,” while the CEO will receive more than $4.4-million in payments and benefits.
Other senior executives are also to receive merger-related benefits, although they are considerably smaller and reflect pay increases.
Writing on his blog Chip Filson, the former Supervisor of the Credit Union Division in Illinois who also served with NCUA as president of the Central Liquidity Facility (CLF) and director of the Office of Programs, which included management of the NCUSIF and the agency’s examination process, and who later went on to cofound Callahan & Associates, highlighted the case of the profitable, 72-year-old Spirit Financial Credit Unionin Levittown, Penn., which is seeking to merge into the $2.3-billion Credit Union 1 of Illinois pending a member vote. Member balloting on the proposal ends Dec. 22.
The Financials
Spirit Financial CU had $365,128 in net income through Sept. 30, with net worth of 13.18%. %. Credit Union 1 had net income of $4.6 million and net worth of 11.04% as of the same date.
“Spirit Financial isn’t struggling — it is thriving,” wrote Filson, noting the $69-million credit union is highly capitalized, financially stable, outperforming peers, and the only locally headquartered depository institution serving Levittown. “Yet in a quiet, opaque merger, every dollar of the members’ accumulated equity of approximately $9 million will be transferred to an out-of-state institution for free.”
Filson added there will be:
- No payouts to Spirit Financial member-owners
- No equity retention
- No bonus dividend
- No local control
- No sole ownership
“Levittown’s families built this wealth, and now it’s about to go away,” he stated.
Payout to CEO
Meanwhile, Filson said the credit union’s CEO, David Obarowski, “who championed the merger,” is to receive:
- A massive cash bonus at closing
- A guaranteed five-year employment contract
- Incentive packages to solicit more mergers
- A fully vested multimillion-dollar retirement package, totaling more than $4.4 million in personal enrichment.
“Community wealth will be removed, assimilated, and relocated, while ordinary member-owners will be left with nothing,” Filson wrote. “Control of Levittown’s financial legacy will shift to a board in Illinois that is unreachable, unelected, and governed by mechanisms that dramatically limit member democracy.
“This is not an isolated incident,” he continued. “Credit Union 1 has initiated over 20 such mergers in just 3½ years, importing hundreds of millions in community assets and capital and using merger accounting to mask weak operating earnings while expanding its asset base by taking over independent, strong local credit unions.”
Message to Members
As the CU Daily reported here as part of its ongoing, industry-leading coverage of mergers, in its message to members, Spirit Financial used language identical to that used in other merger applications related to Credit Union 1, including that the merger is in the best interests of members because the acquiring CU “operates with the technology and systems that align with our members’ needs. Their internal core values align with our own and give us confidence our membership will experience the same quality of service, but with new and expanded service options. We believe a synergy exists between the two credit unions and this partnership will benefit all involved.”
‘Urgent Public Questions’
Filson said the merger raises “urgent public questions” that include:
- How can a member-owned institution be sold without any benefit to its owners?
- Should executives be allowed to personally profit from the liquidation of community capital?
- Where is regulatory oversight when cooperative ownership is silently dissolved?
- Which Pennsylvania credit union will be targeted next?
“If this were a stock corporation or public company, shareholders would be compensated, and regulators would not tolerate uncompensated transfer of equity, Filson said. “But cooperative members will receive no payout, no recourse, and diminished legal standing.”
The full post can be found here.
