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Connexus : Issue 38
W hen executives from merger partners IMCU and resources Credit Union sat dow n to choose a name for the new entity, they had no shortage of options. after offering a prize of $1,000 for the best moniker, they had more than 700 possibilities to sift through, ranging from the good to the bad and the ugly. “There were some really rude ones,” says CEO Joe a zzi. after internal deliberations, the management team opted for My Credit Union as a point of differentiation from the many institutions whose names draw from their industry ties. a consultant assisted with colour choices for a new logo and branding material, and the new entity officially started trading in July. Management faces a range of decisions when credit unions, building societies and friendly societies opt for a merger. as consolidation continues in the sector, more and more boards are having similar experiences. There were about 100 credit unions in australia at last count, and some predict the number could move closer to 70 in the next five years. although merger activity has softened in the past six months, the consolidation trend has been steady, says Tony Schesser, senior manager research and advisory services at abacus. Most interest is in the category of small to medium-size mutuals considering joining forces. “[But] I wouldn’t rule out seeing a merger or two among larger mutuals in the next 12 to 18 months,” says Schesser. Mixed motivations The standard reasons for mergers include achieving economies of scale, offering more value-added services to members and becoming a larger institution to be more competitive with the big banks. as the overseer of liquidity support for credit unions, Credit Union Financial Support System (CUFSS) has closely observed many industry mergers. In examining the 56 alliance partners from mergers that occurred from July 2005 to June 2011, it found that: • 25 were smaller mutuals seeking greater cost efficiencies. • Seven mergers resulted from tight capital conditions that impinged on the institutions’ ability to deliver member services. • Five mergers came in response to the crash of securitisation markets during the global financial crisis. • 13 resulted from delinquency or debt issues. • Six involved mutuals with strong financials but which merged for the strategic reason of delivering even greater returns to members. CUFSS executive officer Gary Eggert says a broader consideration of motivations shows that 50 of the 56 merging mutuals had unsatisfactory financial key performance indicators. “That’s been one of the things that has pushed them to examine a merger.” Eggert hopes that the principal driver for mergers is a desire to sustain or improve the value proposition for members, while other factors – such as competition pressures, regulatory changes and accessing more cost-efficient technology platforms – w ill typically also be part of the equation. While the total of five mergers for 2010-11 is about half the annual average, Eggert says more are on the way, including the three-way merger in Victoria between la Trobe University Credit Union, Melbourne University Credit Union and Pulse Credit Union. Eggert believes at least five are likely to have been announced in the first half of this financial year. People power My Credit Union is not the only mutual that has been grappling with name changes. australian Central Savings & loans has just settled on a new name, People’s Choice Credit Union, almost two years after Savings & loans and aCCU merged in December 2009 to create the nation’s second-largest credit union with more than 350,000 members. Managing director Peter Evers says that, from the outset, the merging boards wanted to create a new name to represent a new organisation. “While we have to respect heritage and bring all of the good things forward, we also want to have a dynamic, competitive new name and position in the marketplace, and also to unify staff under a new direction,” he says. “If you have a combination of the past, then people hang onto the past rather than moving forward.” Name aside, People’s Choice has engaged branding consultancy FutureBrand to help determine what the brand should represent and link the board’s vision to the future of the business. “Name was one thing, but you have colours, personality, commitments MERGERS FEATURE Connexus www.abacus.org.au 39 39 www.abacus.org.au “I’ve seen plenty of announcements of mergers where people have said we’ll go into committee and talk about these things later, and they fall over because there’s no clear path of leadership.” CUFSS executive officer Gary Eggert