GLENDALE, Calif.–Is the disappearance of thousands of smaller credit unions being hastened, at least in part, by CEOs at those institutions taking sweetheart financial packages being offered by acquiring credit unions?
The CEOs of two small California CUs who have been in a public spat with a much-larger CU that they believe is seeking to force them into mergers, say they believe that is the case.
John Drake, CEO at the $110-million Schools FCU in Rancho Dominguez, Calif., and Stuart Perlitsh, CEO at the $355-million Glendale Area Schools FCU here, told CUToday.info that small credit unions with solid capital are not just surrendering to heavy marketplace pressures from big credit unions, such as that which they have felt from the $11.2-billion SchoolsFirst FCU, with which they have been in a dispute, but that in many cases CEOs at small CUs are throwing in the towel thanks to lucrative SERPs or limited-year contracts offered up by the acquirer.
“I am aware of some aggressive predatory credit unions that essentially see a credit union with a net worth totaling $10 million that will offer the CEO a salary contract of say $250,000 per year for three or four years if they fold,” said Perlitsh. “So the CEO takes the bait and the big credit union scoops up the $10 million.”
Paid To Watch 'Grass Grow'
Perlitsh said that even if the package paid to the small CU leader totals $1 million, the big credit union’s balance sheet is $9 million larger.
“The merged CUs’ CEOs love it—they get some major pay to watch the grass grow for a few years,” said Perlitsh. “The board of the acquired institution might pick up a board seat, or get appointed to some ‘marketing committee’ or ‘technology committee’ with a tidy little conference travel budget. Everyone wins, except the members.”
Perlitsh wondered if members of the small credit union would vote to approve the merger if they knew the CEO and board members were getting “juiced” in the process.
“Just another sharp business practice of so many bank-like credit unions,” suggested Perlitsh. “They are banks operating behind the tax-exempt not-for-profit federal credit union charter. Shame on them.”
Drake agreed that “golden handshakes” have motivated some small CUs to enter into mergers. But the “predatory” practices of the big CUs, he alleged, have been going on across the country for many years.
No Merger Interest
Drake said that as soon as he began at Schools FCU in 2013 he was contacted by SchoolsFirst to gauge his interest in a merger.
“The VP of business development of SchoolsFirst, Dana Schuller, called me to engage my interest in a possible merger with them. At that time, the credit union was wallowing in the red, and merger talks had been already started by my predecessor (Harry Montanez), according to Schuller,” said Drake. “I explained to Dana that I was not interested in merging the credit union. My focus was trying to get the credit union back in the black. She thanked me and offered her phone number to me if I changed my mind.”
Drake said he didn’t pursue the offer, because he wanted Schools FCU to “make a go of it on our own. We are not going to cave in, acquiesce to a large credit union breathing down our neck.”
Drake also stated that SchoolsFirst, during the brief call, did not offer him any type of “golden handshake” deal.
That version of events is disputed, however.
Mark Rapp, senior vice president of strategic marketing at SchoolsFirst FCU, told CUToday.info that while SchoolsFirst had a meeting with Schools FCU three years ago, Drake’s account of the meeting “is not accurate.” He also restated that SchoolsFirst does not have a merger strategy and is not looking to merge with any credit unions.”
In a previous CUToday.info report, SchoolsFirst CEO Bill Cheney has also stressed a similar point.
“Our last merger was in 2013, and was prompted by our regulator, the NCUA. They decided it was in the best interest of All Valley FCU members to merge with another credit union to avoid a loss of services to their members. SchoolsFirst FCU was selected,” said Cheney, the former CUNA president, who also emphasized that SchoolsFirst is not planning to merge in other credit unions. “We are very fortunate that our growth and success has been because of our steadfast commitment to serving school employees and their families in the 10 Southern California counties, as our NCUA charter allows. We look forward to helping even more school employees who do so much and work tirelessly to help build a better future for all of us.”
Drake believes that small credit unions need to band together, not only to share resources and lower operating expenses, but for greater marketing clout to battle the large credit unions and other competitors. He explained that a few years ago his CU helped form a coalition of six small credit unions in California.
“They are still around, but the participation part has been hard,” Drake said. “At first they were vocal about the situation we faced with SchoolsFirst, but then they became tentative to do anything. They are afraid of what SchoolsFirst can levy against them if they stand up.”
Drake’s comments follow the publishing of a letter about its view of the competitive landscape on Schools Federal’s website. As CUToday.info has reported here and here, that letter claims the $11.2-billion SchoolsFirst in Santa Ana, Calif., has engaged in a pattern of un-credit union-like practices and is “stealing away” its members.
Deep Pockets
In the letter from its board of directors, Schools FCU stated that SchoolsFirst FCU has been using its “deep pockets” and similar name to “confuse” Schools FCU members and its potential membership base as part of a campaign to bring them over to SchoolsFirst.
SchoolsFirst told CUToday.info that the allegations suggest unethical business practices and are “entirely untrue.”
Glendale Area Schools FCU is also claiming that SchoolsFirst FCU is engaging in “predatory” practices, taking away its members and making it hard to compete for business. GASFCU told CUToday.info that it will soon post a letter on its website stating that it believes SchoolsFirst is taking aim at its membership.