By Michael Fryzel
When you go to a car dealer your intentions are never to pay the sticker price or the price you are told it would take to drive it out the door. You negotiate, haggle, start to get up from your chair and may even walk out of the office to express your unhappiness with the way the process is going. In your mind you have not been given the best deal and you are not about to sign on the bottom line.
In our nation’s capital a similar negotiation, but on a much higher level, has been going on for weeks as the Democrats and Republicans, the House, Senate and President try to reach a deal. None of those involved have sufficiently moved towards the middle to satisfy the other and everyone is holding out for a better deal.
Recently, the NCUA gave approval to a deal allowing the merger of New York-based Progressive Credit Union with Pentagon Federal Credit Union (PenFed). Progressive, a $382-million credit union suffering serious financial losses from their large taxi medallion loan portfolio, was an easy assumption for the $24 billion Pen-Fed.
Whole Ball of Wax
Critics claimed NCUA was wrong in approving the merger. They claim NCUA should have opened up the bidding process, been more transparent and crafted a better deal. It’s clear they failed to see the benefits achieved.
PenFed offered to take the whole ball of wax, the good and the bad. They asked nothing from NCUA, the insurer of both credit unions. Usually in situations like this, NCUA has assumed some of the troubled loans, tried to collect on them and if unsuccessful, wrote the loss off against the share insurance fund. It didn’t happen in this case, certainly making it a good deal for all credit unions.
Progressive’s members are now part of one of the largest and most successful credit unions in the country. They will have access to the best financial services available and their loans will be held by a financial institution that will work with them until they are paid off.
PenFed will benefit by assuming the open charter granted to Progressive by the State of New York. This gives PenFed the ability to take full advantage of offering their services throughout the Empire State.
As could be expected, the American Bankers Association, not a party to the deal and having no input to what occurred, objected to the deal, saying NCUA enabled the merger, implying the medallion devaluation was their fault, and asked Congress to curtail the credit union industry because they are hurting their bank clients.
The concern about taxi cab medallions has been at the forefront for NCUA and credit unions for years. The start-up of Uber and Lyft seriously impacted the value of the medallions, the collateral for loans held by credit unions. Progressive was the last of the surviving troubled ones and in need of a deal.
A Deal is Reached
Months in the making and in full compliance with what the law allowed NCUA to do, a deal was reached.
The benefits of the deal include no loss to the insurance fund, no assessment for credit unions, continued access to financial services for Progressive members and possibly opening up to an even greater number of New Yorkers the ability to access the services of PenFed. It even gave the ABA another opportunity to claim credit unions are hurting banks.
It took time, it took effort and it resulted in the best deal for all interested parties. Sorry critics, you had no skin in the game and where not a party to the best deal made.
Micheal Fryzel is the former chairman of NCUA now in private practice in Chicago.