Merger discussions are underway | Hubert Financial | Discussion forum

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What NorthernRaven & Norman said ⬆

Some of us have seen these CU merger attempts before. Sometimes they're successful ... but oftentimes Not. And quite often, the cost of merging can be far too prohibitive. For the successful ones, the completion of the process can take 'Several Years' ❗

For now, us Hubert members shouldn't lose any sleep over this.

Dean

Loonie said

The unanswered question, for me, is Why?

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In the financial world, in most cases . . .

Dean

What I meant was, I'd like to hear it from Hubert/Sunova as to "why?"
I think they owe members more of an explanation.

From my point of view as a member with deposits, there is no economy of scale with larger FIs. Quite the opposite. The bigger they get, the worse their rates are most of the time and the higher the salaries of their CEOs, CFOs, COOs etc. One need only take a glance at the largest FIs in the country to see this. RBC, the biggest, generally has the worst rates, along with the rest of the gang of five. And so on.

Loonie said
From my point of view as a member with deposits, there is no economy of scale with larger FIs. Quite the opposite. The bigger they get, the worse their rates are most of the time and the higher the salaries of their CEOs, CFOs, COOs etc. One need only take a glance at the largest FIs in the country to see this. RBC, the biggest, generally has the worst rates, along with the rest of the gang of five. And so on.  

There is a major difference between entities with $20+B in assets which are primarily retail and small business offerings (like Meridian, Equitable Group and Home Capital Group) and the big banks with wealth management, capital markets, insurance, etc. that are in different business lines. There is no need to bring the big banks into the discussion.

I have little doubt this proposed merger is designed to be able to compete with Alterna, Meridian, Coast Capital, Servus , Equitable, Home Capital, etc, etc.

Members can go to the individual CU websites to get the rationale for the merger. Example from Sunova's website https://www.sunovacu.ca/merger-discussions-are-underway/

AltaRed said

There is a major difference between entities with $20+B in assets which are primarily retail and small business offerings (like Meridian, Equitable Group and Home Capital Group) and the big banks with wealth management, capital markets, insurance, etc. that are in different business lines. There is no need to bring the big banks into the discussion.

I have little doubt this proposed merger is designed to be able to compete with Alterna, Meridian, Coast Capital, Servus , Equitable, Home Capital, etc, etc.

Members can go to the individual CU websites to get the rationale for the merger. Example from Sunova's website https://www.sunovacu.ca/merger-discussions-are-underway/  

Yes, I think we are well aware of your opinion on this issue.

You may be right, but, personally, it makes no sense at all that they would do this in order to compete with Meridian, Alterna etc., whose rates are generally LOWER for depositors. It's a downward sort of competition if you want to call it that. In my view, it's more about eliminating competition.

I do realize the banks, especially the big ones, have many more enterprises. However, I am looking at this from my point of view as a depositor, not a stockholder, so the answer is that the big banks are not competitive with either the smaller banks or the CUs, generally. From where I sit, bigger is not better; it's worse. (FWIW, pretty well every CU offers some form of "wealth management" and is eager to promote it.)
I suspect that, in this case, the underlying MB economy may be a big piece of the puzzle, but I have not researched that in any depth except to say that agriculture is in trouble and I have been depositing less in MB than I did earlier because of this.

I also got that 1.1% email this morning.

Loonie said
You may be right, but, personally, it makes no sense at all that they would do this in order to compete with Meridian, Alterna etc., whose rates are generally LOWER for depositors. It's a downward sort of competition if you want to call it that. In my view, it's more about eliminating competition.  

The Sunova link I provided pretty much lays it out what the strategy is. I think it is very clear that the merger is about economies of scale to cut costs per unit and to diversify their lending operations to more businesses. They have no real choice as discussed in the links I provided in post #11.

Fintechs at large (the competition) are squeezing (narrowing) the spread between deposit and lending rates leaving insufficient cash flow to cover costs. Every business must cover costs and that ultimately means they can either no longer lend at competitive rates, or pay depositors at competitive rates, to keep the lights on. That can and eventually will put the least efficient out of business.

The links in #11 are interesting with the 11 years of time between the articles albeit there appears to be some encouraging views that the very small CUs that are very local may well survive the hollowing out of the 'middle third' of the CUs. Very local CUs tend to serve isolated communities detached from the mainstream or certain unions or trade groups such as foresters or police or firefighters and they don't have to compete at the broader public level. That is obviously a good thing providing services no one else wants to give them anyway. That, may or may not, change with time with the expansion of online banking and eventually Open Banking in the next 5 years or so.

The larger and middle group of CUs are looking for other ways to compete. Some of them as we know are branching outside their 'charter' by starting banks to reach a broader customer base. However, a CU needs to be of considerable size to employ the expertise and start up expenses to do so. The CU associations are also lobbying their regulators to allow them to see insurance as additions to their business lines.

I suspect we will continue to see the companies listed on the HISA chart here change every year (maybe the addition of more CU banks) and likely get smaller (due to CU consolidations).

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Related . . .

See Post #3 in this thread ⬇

Link: https://www.highinterestsavings.ca/forum/general-financial-discussion/s-e-bc-elevatus-credit-union-project-called-off/

Dean