Tasmanian Times

The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. No price is too high for the privilege of owning yourself. ~ Friedrich Nietzsche

The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. No price is too high for the privilege of owning yourself. ~ Friedrich Nietzsche

Economy

What the planned merger means?

Pat Synge MyState Financial / Tasmanian Perpetual Trustees demutualisation / merger
Jeff Briscoe emphasised that the proposed merger would be more than just a merger since it would also mean the demutualisation of the last major Tasmanian Credit Union. He successfully opposed the proposed demutualisation of Connect in 2003 and, when it was rejected by a very narrow margin, he was elected as a director and so knows what goes on behind the closed doors of the board room and understands some of the motivations involved. He knows that, if nothing else, it’s very much in the directors’ personal financial interest that such a demutualisation goes ahead. But the more important questions are: is it also in the interest of members? Is it in the long term interest of the Tasmanian economy?

Economist Bruce Felmingham said that he considers the proposed merger “the most exciting thing in the financial sector in Tassie in years”. He seems to have no doubt that the proposal is positive but over the last few months many of us have learnt to take the pronouncements of economists with much more than a pinch of salt. It ‘s certainly a very interesting time to be proposing such a change of structure with banks around the world in deep trouble and many politicians and others having a major rethink about the structure of capitalism in general.

IT WAS interesting to hear last Friday’s ‘Stateline’ discussion on the proposed demutualisation of MyState Financial through its merger with Tasmanian Perpetual Trustees. The report was fairly balanced but the interviewees lacked any really solid information to base their opinions on since the formal proposal has yet to be put to members of MyState and shareholders of Tas Perpetual.

Jeff Briscoe emphasised that the proposed merger would be more than just a merger since it would also mean the demutualisation of the last major Tasmanian Credit Union. He successfully opposed the proposed demutualisation of Connect in 2003 and, when it was rejected by a very narrow margin, he was elected as a director and so knows what goes on behind the closed doors of the board room and understands some of the motivations involved. He knows that, if nothing else, it’s very much in the directors’ personal financial interest that such a demutualisation goes ahead. But the more important questions are: is it also in the interest of members? Is it in the long term interest of the Tasmanian economy?

Economist Bruce Felmingham said that he considers the proposed merger “the most exciting thing in the financial sector in Tassie in years”. He seems to have no doubt that the proposal is positive but over the last few months many of us have learnt to take the pronouncements of economists with much more than a pinch of salt. It ‘s certainly a very interesting time to be proposing such a change of structure with banks around the world in deep trouble and many politicians and others having a major rethink about the structure of capitalism in general.

It will be revealing to see how the relative values of the two entities are calculated with the value of Tas Perpetual’s shares having dropped from above $5 last July to around $2.90 now. MyState Financial, not being a listed company, is not subject to the vagaries of the ASX and its real value is therefore much more easily calculated.

The recent merger between Connect and Island State credit unions to form the new MyState Financial was fairly straightforward and was not actively opposed though there are many complaints surfacing about the service provided by the new larger entity and there have certainly been glitches along the way. There is no doubt that the ‘economy of scale’ argument has validity and will be the major argument behind this new proposed merger. It’s unlikely that the proponents will even mention demutualisation except when obliged to and, over the years, ‘brand loyalty’ has been eroded. The name of the credit union has changed so often over the last few years that many customers don’t even remember the current one and no longer does management refer to it as a Credit Union.

Members of MyState Financial will be offered a number of shares in the new entity which they will be able to keep or sell as they wish. Currently it’s suggested that these will be worth about $1000 and this carrot is likely to encourage many to vote for the proposed demutualisation/merger irrespective of its long term merits. It’s proposed that a 10% shareholding is the maximum that any one entity will be allowed (subject to legislation being passed) and that this will prevent takeover. Whether this is really an effective means of preventing takeover is debatable and it has been suggested that it would be easy for a group of shareholders to acquire sufficient shares to control the board within quite a short period of time. As little as 20% ownership provides considerable leverage and this could simply be owned by a single couple. A single family could easily stack the board. Once demutualised the directors will be legally obliged to operate in the interests of the shareholders rather than in the interest of the customers. In other words profit and share value become the driving force rather than service. Without satisfied customers, of course, no bank is likely to be profitable so one can always argue that the two go hand in hand though one sometimes has to wonder!!

History indicates that if the proposed demutualisation/merger goes ahead the next likely step would be for one of the ‘Big 4’ to take an interest in swallowing it up. The shareholding cap (if legislated) is unlikely to remain effective for long since it’s so easy to circumvent and, anyway, what is legislated can always be changed.

Over the next few months we will receive more detail on the proposal and so will be in a better position to have an informed discussion. I invite those with an interest in the proposal – for or against – to contact me and I will forward any information I collect as it comes to hand.

patsynge@bigpond.com

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3 Comments

3 Comments

  1. Garry Stannus

    February 25, 2009 at 9:31 am

    Can’t believe that so soon after Island State, now its going to be TPT. ‘There won’t be any branch closures’, they told us last time. – Wrong. And I encountered problems with my account that went on for quite some months. I want the credit unions of the old days, and won’t accept being told that it’s progress or some such thing.

    What do I get for it in return? A smelly glossy booklet telling how wonderful things are with whatever they are called now, just like the artice said. Connect? Teachers Nurses? Island State, Launceston Buildng Society … the brain can’t keep up with it.

    I’m not an economist, that’s probably why I’ve never been a fan of Bruce Felmingham. You see, I’m old-fashioned. I believe that the role of Govt is to protect us from the sort of big business that it seems to me Felmingham is always trying to talk up.

    I was against the last merger and am against this proposed one.

  2. Pat Donnelly

    February 24, 2009 at 6:24 pm

    Demutualization is a scam. Always has been. The inflate and sell off economy has died but some still apply the principles and prosper.

    They will succeed, as turkeys always vote for Christmas. Eventually, they may learn, but as I age, disgracefully, I get more skeptikal of the intelligence of the average person.

    Build a new credit union and get over it! Use your opposition to this travesty to advertize the new CU! The Aussie league will help set up a new one. Get a new career going!

  3. Mike Bolan

    February 24, 2009 at 4:09 pm

    One thing this will likely mean is higher executive salaries and benefits.

    Will Bob Gordon still be on the Board?

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