# How is your CU doing post merger / takeover ?



## MrEarl (30 Nov 2016)

Hello,

I would like to know how your credit union is doing, since it merged or was taken over by another credit union.  Questions like the following might help us to get the ball rolling:


Are the lending rates more competitive now than they used to be ?
Is the annual dividend better or worse than it used to be ?
Have the range of services and overall efficiency improved ?
Are there longer or more convenient opening hours ?
Have all of the former credit union offices remained open (with no reduction in opening hours, staff or services, no buildings sold resulting in a reduction in the number of offices etc.) ?
Whats the online offering like now, compared with what you used to have ?
Whats communication like from the Board and Chairman of the credit union like now, compared with what it used to be ?

Mergers and takeovers have been a "hot topic" for the past couple of years across the credit union movement.  At some levels, it would appear that the Central Bank has a vested interest in seeing the number of credit unions reduced (to make their job easier !), while at other levels it is clear that credit unions have needed to merge to continue to exist, not alone prosper.


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## 24601 (7 Dec 2016)

The short answer is it's too early to tell. I do think you're right regarding the Central Bank, and it's understandable. Credit unions must take up a disproportionate amount of supervisory resources given their relative size. Otherwise, my first impressions are that mergers have had and will have extremely limited benefits until there is a massive change to the business model.


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## MrEarl (7 Dec 2016)

24601 said:


> The short answer is it's too early to tell. I do think you're right regarding the Central Bank, and it's understandable. Credit unions must take up a disproportionate amount of supervisory resources given their relative size. Otherwise, my first impressions are that mergers have had and will have extremely limited benefits until there is a massive change to the business model.



Hello,

Thank you for the reply.

I think some mergers are a lot further advanced than others, so it may not be too early to tell in all circumstances (although I do take your point, in respect of the more recent mergers).  Credit Unions such as Members First and Progressive Credit Union on Dublin's northside for example, have a couple of mergers under their belts.  I'm sure there are numerous others that have mergers going back a couple of (or even a few) years at this stage.

As for the amount of supervisory time being taken up by Credit Unions, there is clearly a point here.  However, I would suggest a couple of things to help address this:

I would propose that the Central Bank take a risk based approach to supervising the credit unions, with different levels of requirements depending on the size of the credit union, activity levels, balance sheet strength etc.  This is not to say that some credit unions are not regulated, just that the Central Bank devotes more time and puts more requirements on the larger or more challenged credit unions.
I would also suggest that the Central Bank (or the ILCU etc.) consider hiring a specialised team of staff who could go into a credit union, assimilate all relevant information and prepare suitable final reports - then meet with the Board to discuss their findings, following by a submission of their review to the Central Bank.  This would help with efficiency, not least because many credit unions don't have the resources or finances to provide what is truely needed in terms of ongoing Central Bank reporting etc.  Obviously, costs would be covered by all Credit Unions in some manner or other.
Like you, my initial impressions are that these mergers are not delivering much in terms of member benefits (other than where necessary, helping to manage a problem CU).

I have no doubt the business model needs to be amended, be it to deal withe the lack of returns available to savers beause of restricted investment opportunities, or limited lending - in part caused by restrictions on what CUs can lend to and also, the lack of investment in technology (proper online loan application processes, debit cards etc.).  I believe that the ILCU could and should be doing more to help the CU movement evolve, but thats probably something for another discussion thread.


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## 24601 (7 Dec 2016)

Well when you look at the income and expenditure accounts and  balance sheets of those credit unions you mention you can probably surmise at this stage that they're no better off or worse off than they were. Their cost bases haven't shrunk in line with their increased scale and their loan to asset ratios remain depressed. There are some outliers such as the Health Services Staff CU who have extremely strong lending figures but those CUs tend to have been well lent prior to the introduction of the Credit Union Restructuring Board. 

Most credit unions are extremely well capitalised but the management of capital within the sector is shocking. That massive buffer will insulate them from the real effects of falling income in the coming years but without complete transformation of the business model it's likely that it will dwindle away as deficits begin to chip away. They’re extremely exposed to the low interest rate environment, not to mention the possibility of new entrants into the market coming in and stealing their lunch.

In relation to the supervision of Credit Unions, your first point, which is effectively tiered regulation, was strongly argued for in the Commission on Credit Unions Report in 2012, which ultimately resulted in the 2012 Act. However this never came to fruition and we have the bizarre situation whereby a credit union with assets of €10million, one or two staff and a couple of thousand members is subject to the same regulation as one with a quarter of a billion in assets, 5 branches, 50 staff that is offering mortgages and online banking etc. Within the one-size-fits-all regulatory framework there is an allocation of supervisory resources based on the CB’s risk framework called PRISM. In theory this means that the larger, more complex credit unions are subject to enhanced supervision based on the potential impact/proability of their failure but in practice this isn’t very effective, especially given the fact that a small credit union may appear perfectly healthy from a balance sheet point of view, whilst having asset quality issues that can be underpinned by very poor governance practices.

On your second point, this already exists through PRISM with on-site engagements one of the key mechanisms for the Registry of Credit Unions in supervising credit unions. These are followed up with a risk mitigation programme that credit unions are more or less obliged to follow. In addition to this Credit Unions are now required to have a professional CEO, Internal Audit Function, Compliance Officer and Risk Management Officer who all have statutory reporting obligations  to the Board either monthly or quarterly. They also have access to a monitoring service provided by the ILCU. So there’s definitely no shortage of support!

The issue is primarily one of strategy and governance capacity. Despite having all these lines of defence credit unions can still be governed ineffectively and  many boards do not possess the strategic nous required to address their viability challenges adequately. This is a big problem in smaller credit unions but it’s also a huge challenge in larger ones, including those that have merged in recent years.

In terms of member benefits, I don’t think many mergers have delivered enhanced member benefits as of yet. For smaller credit unions there are obvious benefits from a service point of view from merging into a larger credit union with more services but at a macro level there’s very little difference between say an 85million CU and a 120million CU which has a balance sheet structure that is carrying 70-80% in member  deposits and 20-30% in loans. The added scale may set them up to take advantage of a changed business environment in coming years but in the absence of the federalisation of the model or the introduction of well-funded and professionally managed CUSOs the only benefit to restructuring appears to be easier supervision for the Central Bank. Indeed, from afar it would seem many merged CUs have increased their cost base rather than rationalised post-merger. 

The lack of return to savers is immaterial as far as I’m concerned, especially in the current environment. In any case they’re meant to be community lenders, not investment clubs. If they do their core job well dividends will return to respectable levels, but to be depending on paltry investment returns on large deposit books whilst being 27% lent is a shameful destruction of wealth, especially when you’re lending money at 9/10% and using products such as share-secured loans.

The lending restrictions have minimal impact; the demand just isn’t there any more and they’re not increasing market share, and in many cases the restrictions are wholly warranted (even if they are applied bluntly). Any progressive well-run CU would have the restrictions lifted by now anyway.

There’s been no shortage of investment in IT either by the way, it’s just probably been wasted through duplication etc. When you have 300+ credit unions, you have a lot of service providers lining up to take their money. Sector-wide IT projects usually fail due to poor levels of support from the CUs themselves. 

You’re right about the ILCU but that could take up another discussion forum, let alone thread. In fairness to them though they’re a prisoner of wider inertia in the sector.


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## Brendan Burgess (8 Dec 2016)

Mr Earl

I was a member of Sandymount and now I am a member of Dundrum since it took over Sandymount.

The dividend was cut from 0.5% to 0.25% but I don't think that the merger caused this. 

Both credit unions suffered all of the problems as set out by 24601, and now the single entity suffers the same problems. 

Brendan


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## Brendan Burgess (8 Dec 2016)

Great post 24601 a good summary of what is happening. 



24601 said:


> n any case they’re meant to be community lenders, not investment clubs. If they do their core job well dividends will return to respectable levels, but to be depending on paltry investment returns on large deposit books whilst being 27% lent is a shameful destruction of wealth, especially when you’re lending money at 9/10% and using products such as share-secured loans.



It prompted me to actually read the accounts of Dundrum. 

Loans to members: €39m 
Net loans if the shares were set against them: €30m ( my estimate, it's not disclosed) 
Reserves: €22m 

So they could fund the loans with only €8m in shares. 

Amount in shares and other savings : €132m 

They have cash balances of €110m on which they earned €2m - say 2%. 
They are paying out 0.25% 

They made a profit of €2m and are paying out €300k in the dividend. 

It's all bonkers stuff. 

Brendan


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## MrEarl (8 Dec 2016)

Brendan Burgess said:


> Great post 24601 a good summary of what is happening.....



Absolutely !

I am led to believe that some of the CUs that have merged are now implementing rationalisation plans - reducing opening hours, cutting staff and selling off buildings.  I do not have sufficient information on a particular credit union to evidence this as yet, but it has been suggested to me that in some cases these mergers are proving to be little more than larger predator credit unions coming in and "asset stripping" their smaller prey, under the guise of a friendly merger.  Have either of you (or anyone else reading) seen evidence of this ?

Putting aside any emotions linking us to individual credit unions, rationalisation plans may well be appropriate post merger of two or more CUs.  Cost cutting is often a good thing, after all... but only to the extent that it benfits the concerned parties (in this case, the members (aka "customers")).  If it's simply liquidating assets to help shore up other problems, then it's definitely not the way to go imho.

I again find myself wondering why more CUs do not cease trading, liquidate all assets and distributing the net assets to their members - leaving the door open for larger CUs to expand their territories replacing the CUs that cease trading.




Brendan Burgess said:


> ....It prompted me to actually read the accounts of Dundrum....
> 
> ....They have cash balances of €110m on which they earned €2m - say 2%.  They are paying out 0.25%



I cannot see how your CU or any other is likely to get anything like 2% back on it's cash this year or next, unless they happen to have locked away a lot of their cash on fixed rates for a couple of years.

With little or no income likely to come from the excess cash, it puts even more pressure on the CUs to lend, but many don't seem capable of attracting in new business and certainly not of the volumes required.


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## Spud1981 (23 Dec 2016)

24601 said:


> The short answer is it's too early to tell. I do think you're right regarding the Central Bank, and it's understandable. Credit unions must take up a disproportionate amount of supervisory resources given their relative size. Otherwise, my first impressions are that mergers have had and will have extremely limited benefits until there is a massive change to the business model.


one of the main benefits is to better enable them to change the business model..........this will take time but will occur in many instances, a number of credit unions have made real progress towards being able to provide current accounts with debit cards etc, many of them are the same ones who have been active in merging


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## MrEarl (29 Mar 2018)

Hi,

It's over fifteen months since the last post, so would anyone care to share further experiences or update their initial comments ?


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## Protocol (29 Mar 2018)

CU rates are too high IMHO.

They should be charging 4.9% max, given the competition with PCPs.

Instead I see rates of 6.9%-8%, way too high given the 0% ECB rates.


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## RichInSpirit (29 Mar 2018)

My local credit union was merged into a larger slightly less local credit union.
I think they are doing ok.
But they can't lend to anyone who the banks won't lend to so in effect they are basically just another bank now.


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