PAT SYNGE
Why shouldn’t MyState merge with TPX and form a shareholder owned company?
Why would the directors unanimously recommend demutualisation if it wasn’t the right thing to do?
These are some of the questions that are being asked by members as they decide how to vote on this merger/demutualisation proposal. The 240 page ‘Information Booklet’ is so blatantly biased in favour of the proposal that it’s hard not to feel that it may not be revealing crucial information.
It’s true that, since the merger between Connect and Island State, MyState has been acting more and more like an impersonal bank. Fees have been raised to match the banks and the service has become less and less member-focused. This has obviously been a conscious decision of the directors along with dropping the use of Credit Union in the name. Frustrated at the refusal by members to accept their attempt to demutualise Connect back in 2004 they have been consistently undermining the concept of “mutuality” that should underpin a credit union. This is largely due to the apathy of members in electing directors whose primary interest appears to be in changing the ethos of the institution and focusing on profit rather than service and good value.
Profit is, of course, extremely important but it can be achieved while offering real service rather than emulating the banks. If MyState were to actively promote the difference between itself and the banks (rather than the opposite) it could remain profitable and grow by attracting more members by offering more competitive rates and better service. We live in an age of internet financial transactions and credit unions can do this just as efficiently as banks. Our credit union should also offer investment products that allow members to invest in Tasmanian projects. It should offer an “ethical investment” product that allows us to avoid unwittingly investing socially or environmentally irresponsible activities. There are many of us in the community who are looking for such opportunities and are even willing to sacrifice a few cents in return if we could be confident that we are investing in the local economy or not supporting businesses and practices that we do not approve of. Ethical investment need not provide a poor return and has, in fact, shown itself to often provide better returns than some other investment streams.
(certainly better than the CDOs that the CBA and others were pushing). With the current directors this will not happen and as a shareholder owned company it is even less likely to happen. Profit and shareholder value will be the driving force and especially when directors’ remuneration is linked. This becomes even worse when short term profit is rewarded
Credit Unions are a thing of the past?
Australian Mutuals have more than 4.5 million members and over $60 billion in assets and while there are certainly fewer credit unions than in the past this has mainly been due to merger rather than failure.
Not only do they benefit from the current Federal Government guarantee they also have a mutual Credit Union Financial Support Scheme that provides support should any individual institution require it. As the major banks take over the few existing smaller banks we a being left with less and less choice and so it may well appeasr that “credit unions are a thing of the past” simply because the ‘big 4’ are so dominant. We have seen the rise of so called “community banks’ in recent years. A sort of melding of CUs and traditional banks where a small percentage of the profit is put back into the community where the bank operates. This has shown itself to be successful with the Bendigo Bank being foremost. The community has shown itself willing to invest with institutions that contribute back to the community. Mutuals are not a thing of the past for their 4.5million members.
Why would the directors unanimously recommend demutualisation if it wasn’t the right thing to do?
I hesitate to suggest that it’s in their own personal financial interest to do so. It’s true that this is the case but there must be more to it than this surely.
It’s also in the interests of a number of other players. Consultants and facilitators, merchant bankers, lawyers, actuaries and others that charge high fees for providing advice regardless of whether this is good or bad. These people promote mergers and acquisitions simply in order to create work for themselves. They are constantly on the look out for likely targets. They wine and dine. They spend a lot on corporate hospitality. They enjoy confidential conversations. And not with the object of creating wealth for others. Even if this proposal doesn’t get the green light it will have already lined the pockets of many.
“Big is beautiful” is a business mantra that is so deeply ingrained that it’s hard not to believe that it is an Absolute Truth. This is despite the glaringly obvious examples of huge corporate collapses that have occurred largley because of the size of the entities involved. The left hand didn’t know what the right hand was doing.
Economy of scale is important and especially so in financial services and this is one of the main reasons that Credit Unions formed CUFFS and CUSCAL – to provide mutual support and affordable and efficient banking services to Mutuals across the nation. A nationwide network of ATMs and efficient internet transaction services exists and credit unions can participate regardless of their size. Of course there are savings to be made by merging and rationalizing staffing and office space and this is a valid argument for growth but it’s not an argument for demutualisation. While I was uneasy about the merger between Island state and Connect I could see the logic despite knowing that the next step would be another push for demutualisation.
It would, of course, be very interesting to know how much our directors stand to gain personally through this proposed merger. What ‘golden handshakes’ have been promised? Then of course there is the question of how much their individual incomes will increase if the business becomes a listed company? This would be decided by the eventual board themselves and, in practice, barely be subject to shareholder control. No doubt they would be reasonable until scrutiny lapsed but we’re all aware of the very high remuneration that many directors of financial institutions give themselves and the very limited power of individual shareholders.
