Credit Union Conversions: The Gift That Keeps on Giving to Wall Street

WAYCROSS, Ga. – The second-step conversion of ex-credit union Atlantic Coast Federal Bank could reap as much as $1 million in underwriting fees for investment bank Friedman, Billings, Ramsey & Co., adding to millions of fees already earned by the company for selling stock in former credit unions. The former Atlantic Coast FCU announced this week it will follow up its October 2004 limited initial public offering by selling a majority stake to the public–a two-step conversion that could yield in excess of $120 million. Friedman, Billings earned $580,000 from the 2004 IPO, in which just 36% of the converted credit union was sold to the public and a mutual holding company retained a controlling 64% stake–which it plans to sell now. At the traditional 1% commission, the two-step offering could yield as much as $1.2 million in fees for the investment bank. "The reason that they want to make the mutual holding company a fully stock company is there's a whole lot more money to be made. It's a second trip to the well," said Steven Bisker, a Virginia attorney who has fought credit union conversions. Friedman, Billings is just one of several investment banks that have earned millions of dollars by serving a multitude of functions for credit union converts. One Wall Street bank, Sandler O'Neill, for example, has not only advised credit unions on the switch to bank, but earned fees underwriting one IPO, then traded millions of dollars in stock in former credit unions. The company's Sandler O'Neill Asset Management unit is one of the biggest shareholders in First PacTrust Bancorp, (once Pacific Trust FCU) with stock valued at $4.2 million, according to a Securities and Exchange Commission filing. Keefe Bruyette & Woods, another Wall Street bank, has earned more than $6 million in fees from underwriting deals for converted credit unions, including $1.2 million for last October's hugely successful IPO for Viewpoint Bank, known until January 2006 as Community CU. KBF is also expected to be the underwriter for the IPO of OmniAmerican Bank (OmniAmerica CU), to come to market any day and expected to raise more than $100 million.