Pentagon FCU Analysis Of Conversion Finds No Value

One multi-billion-dollar credit union that investigated what a conversion to a bank charter would mean to its members said it could not find any value in doing so.

"Pentagon Federal Credit Union has no intention to convert to a bank, but I thought it was important that our board be educated about this issue," said Frank Pollack, CEO of the $7-billion PFCU. "I do not see PFCU converting unless the industry was taxed. I really believe that the credit union charter is the best charter for our members by a mile."

That said, Pollack brought in attorney Rich Schaberg of Thatcher Proffitt & Wood to explain charter conversion to the credit union's board. Additionally, Pollack discussed conversion options with Goldman Sachs.

"We had a conversation with Goldman Sachs, and after hearing what they had to say, in our opinion, there is absolutely no way our members could ever benefit from a conversion because you have to make up the difference of the tax implications, and there's just no way to do that," Pollack told The Credit Union Journal. "I feel very strongly at the end of the day that a credit union that converts cannot provide a greater pricing value down the road than they did under the credit union charter."

Moreover, Pollack said he would like to see legislation in place that would guarantee that when a former credit union goes from being a mutual savings bank to a full stock institution, that members are compensated for the loss of their capital.

"The members' capital is being taken away from then when they take that second step," Pollack said, referring to the two-step process a credit union must go through, first converting to a mutual charter and then later converting to a stock institution. "But even before that second step, the true member of modest means becomes disenfranchised in the first step [because member's voting rights are based on the size of their accounts] and that is just wrong."

And for all the talk about the need to raise capital and how the existing CU regulations hamper growth, Pollack suggested this is a moot point to CU members. "No member who joins a credit union ever goes in and asks how fast the credit union is growing," he said. "They want good rates, great service, and they want to be treated special."