We could lose our $16 million of member-ownership without fair compensation.

 

Beehive tries to assure us that we will continue to be owners of Beehive if it becomes a mutual thrift bank, but according to federal case law, “depositor ownership of a mutual thrift is merely a technicality.”1 However, the members of a credit union own the institution in the same sense that shareholders own an ordinary business corporation. 2

More importantly, converting to a mutual bank is generally the first step towards selling stock, which usually provides insiders with the opportunity to make windfall profits but leads everyday members to lose our ownership.

According to a study by the University of Wisconsin, “The credit union that converts to a mutual is simply creating the device through which it can issue an IPO (stock offering) and become a commercial bank.”3To date over 80% of converted credit unions eligible to sell stock have taken that step. 

When a converted credit union sells stock, it is selling away the ownership that belonged to its members. However, members are not typically compensated for that loss of ownership. Instead, they are given the option of buying their ownership back as stock. Typically, 95-99% of the members do not buy in either because they don’t understand the value of the opportunity or cannot afford to buy stock, and so receive nothing in return. In contrast, nearly all directors and executives have bought stock. In addition, directors and executives typically give themselves 4% of the stock as what is called a “Recognition and Retention Reserve” and give themselves stock options to 10% more.4 According to the National Center for Member Trust, “Insider gain at the member-owners’ expense violates the trust between the member-owners and their elected and appointed leaders.”

 

To illustrate: Let’s say your credit union was an envelope with $1 inside. I offer to buy it for $1, and you agree. So I take the envelope and put my $1 inside. Now I have $2 and you have none. Unless Beehive pays us fairly for our ownership, this is what could happen if it sells stock, as the vast majority of credit unions converted to banks have done.

When Nationwide Federal Credit Union converted to bank, it paid its members for their ownership. (Lean more here) We currently own Beehive’s $16 million dollars of net worth. Why isn’t Beehive talking about paying us fairly for our ownership?

 

Claims:

It may be misleading for the credit union to say that “members will have the right to purchase the stock on the same basis as the officers and the Board of Directors” (Disclosure statement p.15). That may be true, but members will not share the Board’s ability to choose to give itself 4% of the stock as a “Recognition and Retention Reserve” and stock options to 10% more.5 If Beehive issues $1 of stock for every $1 of net worth, these represent $2.4 million dollars of stock for insider gain unavailable to the members.

It may be misleading for Beehive to say:

“In the opinion of the Board of Directors, most concerns about unjust enrichment of officers and directors are the result of misunderstanding about how stock is distributed when a mutual savings bank offers stock as a means to raise capital. There will be no distribution of stock as a result of this Charter Change on which you are being asked to vote. Therefore, any concerns about stock-based enrichment as a result of the Charter Change are unfounded” (Disclosure Statement p. 16).

We are aware that stock-based insider gain comes in the stock sale “Step 2” conversion. We are aware that over 75% of the credit unions to take the “Step 1” conversion, which Beehive has proposed, have then taken “Step 2” if they are eligible.

 

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