Credit Union Target Of Takeover Effort

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Marketing employees of Wings Financial Federal Credit Union found themselves in a curious predicament recently: they were kicked off the grounds of their El Segundo rival, Continental Federal Credit Union.


Team members, including a business development executive, from the large Minneapolis-based institution had entered the lobby of the home branch of Continental credit union. They passed out flyers to employees and customers touting the benefits of a merger one that had already been rejected twice by Continental’s management and board.


In effect, Wings had launched an unprecedented hostile takeover attempt of its rival something previously unheard of in the collegial world of credit unions.


“We knew there were chances we would be removed from the premises,” said Wings Chief Executive Paul Parish, who planned the event but did not participate. “We anticipated having a public sidewalk to talk to people and that wasn’t the case.”


The aim of the flyers was to persuade Continental members or employees to pressure Continental’s board to vote for a merger. The flyers promised lower banking fees, higher savings rates and better loan terms. Then there was the topper: a cash credit of $200 for any member that switched accounts to Wings, amounting to a $5 million total payout.


Tom Glatt, Continental’s chief executive who had already rejected Wings’ overtures, was furious after hearing that his rival had taken its campaign directly to employees and customers in his place of business.


“It was like Pearl Harbor. They sucker punched us. It’s been made plain we’re not interested in any type of deal,” Glatt said. “He needs to back off. We can make decisions for ourselves on what is best for our credit union and workers in the industry that we serve.”


The events of March 9 were an oddity in an industry where mergers are not unknown, but usually proceed through traditional channels, such as arrangements in which regulators strive to save struggling credit unions by merging them with financially sound ones.


However, the aggressive takeover attempt by Wings likely the first of its kind may not be the last. It was spawned by a recent decision by the federal National Credit Union Administration to loosen the restrictions governing credit unions that have Trade, Industry and Profession charters.


Those charters traditionally required credit unions to confine their memberships to specific classes of employees, such as baggage handlers or pilots at specific airlines. But now credit unions such as Wings can expand their membership to include any employee at both passenger and cargo airlines, as well as related service employees such as food service workers.


Keith Leggett, senior economist with the American Bankers Association, said that Wings’ aggressive moves are a sign that some credit unions are starting to operate more and more like commercial and retail banks.


“This is happening because there is greater competition and consolidation in the credit union space just like there is in the traditional banking industry,” Leggett said. “Granted you never had people walking up to employees and members to convince them to merge, but smaller credit unions are being picked up by bigger players. It’ll be interesting to see how this plays out and what it’ll do to regulations.”


Bill Cheney, president of the California Credit Union League, said he has never seen anything like the Wings/Continental saga and hopes that it is not a portent of the future especially given the longstanding dispute between credit unions and commercial banks.


“I hope this doesn’t get uglier. Wings’ approach in continuing to go directly to members is unorthodox and maybe they should take stock of the situation and take a hint,” said Cheney. “When a board of a credit union rejects your offer, it usually means that they took it to members and the members didn’t like it. I don’t know that anyone saw this coming. We’re not banks and no credit union should behave like one.”



Pearl Harbor

Indeed, Wings was aggressive even prior to its current efforts to merge with Continental Credit, which serves employees of Continental Airlines and U.S. Airways.


Formerly called Northwest Airlines Federal Credit Union, Wings was established in 1938 to serve Northwest Airlines. It has had an office in El Segundo, not far from Continental’s office, for years. Since 2003, and especially in the last 14 months, the institution has moved quickly to increase its market share by wooing customers from rival credit unions. Its attempt to absorb Continental is the first time it’s attempted a merger of this scope.


It now serves employees of more than 30 airlines, including Delta and American, and has assets of $1.6 billion. Continental is a small fry by comparison with just $177 million in assets.


At one point, Wings had even considered changing its charter to a commercial bank but decided against it. “We did explore that but in the end, we feel there is great value in remaining a credit union and we are not interested in growth for growth’s sake like some banks are,” Parish said.


Wings Financial first approached Continental Credit about a merger in the fall of 2005. Talks began with a series of informal phone calls to Continental after Parish and his executive team spent the summer studying the feasibility of acquiring the group. “It seemed like a good fit,” recalled Parish.


On Nov. 17, 2005, Wings sent its first letter to Continental, at the time headed by Gary Swensson. That eventually led to a meeting last May during which Parish and his finance chief discussed a possible merger with Swensson and other Continental executives.


But by July, Continental had rejected the offer. “While the future may bring to light greater reasons for joint service efforts for our wide-based memberships, we feel that our current opportunities need to be fully developed,” Swensson wrote in a July 17 letter.


However, Parish said he decided to continue with the merger because the letter noted that Swensson was retiring and that his successor, Glatt, “will be interested in maintaining a dialogue.”


But after the boards of the two groups met last December, Continental rejected a second proposal by Wings, it became clear that Glatt wasn’t keen on dialogue of any kind. A third offer was rejected earlier this month.


“I had a good relationship with Swensson,” Parish said. “The new guy (Glatt) won’t return my calls though. I’m not going to speculate on his feelings about me but it’s puzzling as to why he’s intent on ignoring me when this benefits everyone.”

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