We could lose over $11 million of member-ownership without fair compensation
First Basin is worth $11 million to it’s member-owners. In reality, if the credit union was sold on the open market, members would receive well in excess of that $11 million.
Directors try to assure us that we will continue to be owners of First Basin if it becomes a mutual savings bank, but according to federal case law, depositor ownership of a mutual savings bank “is ownership in name only”. 1 However, the members of a credit union own the institution in the same sense that shareholders own an ordinary business corporation. 2 Such ownership is diminished upon conversion to a credit union.
More importantly, converting to a mutual bank is generally the first step towards selling stock, which usually provides insiders with the opportunity to make windfall profits but leads everyday members to lose our ownership.
According to a study by the University of Wisconsin, “The credit union that converts to a mutual is simply creating the device through which it can issue an IPO [stock offering] and become a commercial bank.”3 To date over 75% of converted credit unions eligible to sell stock have taken that step.
When a converted credit union sells stock, it is selling away the ownership that belonged to its members. However, members are not typically compensated for that loss of ownership. Instead, they are given the option of buying their ownership back as stock. Typically, 95-99% of the members do not buy in either because they don’t understand the value of the opportunity or cannot afford to buy stock, and so receive nothing in return. In contrast, nearly all directors and executives have bought stock. In addition, directors and executives typically give themselves 4% of the stock as what is called a “Recognition and Retention Reserve” and give themselves stock options to 10% more.4 According to the National Center for Member Trust, “Insider gain at the member-owners’ expense violates the trust between the member-owners and their elected and appointed leaders.”
To illustrate: Let’s say your credit union was a pickup truck. I offer to buy it from you for $10,000. So I take the truck, plunk my $10,000 on the front seat and drive away. Now I have the truck and the money, and you don’t have anything! Unless First Basin pays us fairly for our ownership, this is what could happen if it sells stock, as the vast majority of credit unions that have converted to mutual savings banks have done.
When Nationwide Federal Credit Union merged with a bank, it paid its members for their ownership, plus a premium! (Lean more here) We currently own First Basin’s $11 million dollars of net worth. Why isn’t First Basin talking about paying us fairly for our ownership?
Notes:
1.Ordower v. OTS, 999 F.2d 1183, 1185 (7th Cir. 1993)
2.Anheuser- Busch Employees Credit Union v. Federal Deposit Insurance Corporation, 651 F.Supp. 718, 724 (W.D. Mo. 1986)
3. Kashian, Russ. “Study indicates converted credit unions will issue IPO eight years after mutualizing.” University of Wisconsin at Whitewater, 2007.
4. Theriault, Alan D., CEO & Directors: Salary Imbalance is Corrected by Converting to a Bank, CONVERTING FROM A CREDIT UNION FAX UPDATE,Sept. 16, 2002, available at http://www.cufinancial .com/pdfs/ NL2002.pdf.
