MyState members have just received the latest glossy promotional mailout and learned that they will receive an Information Booklet “over the next few weeks”. We are urged to read this carefully before making any decisions about the proposed merger. No doubt good advice but the CEO’s message is clear. It’s all positive. The merger will “create a Tasmanian-based diversified Financial Services Group, with enhanced balance sheet strength and an excellent platform upon which to expand and grow”. You know the kind of stuff.

Nowhere in 12 glossy pages are the words “Credit Union” used ( sorry, a mistake: it’s printed once - at the bottom of the back page in the smallest possible typeface that most of us would need a magnifying glass to read!). Certainly the “D word” isn’t used. Demutualisation.

Over the years this Credit Union has grown larger (mainly through merger) and has been distancing itself from its membership. Now they only reluctantly acknowledge that they are still a credit union and are owned in equal part by all customers. If this merger goes ahead it will no longer be a credit union but will become a company listed on the ASX. Effectively a shareholder owned bank.

So what’s wrong with this?

Losing the last statewide Tasmanian Credit Union will immediately reduce choice. With no Credit Unions left we will be able to choose between a bank and a bank. The new entity will continue in its current form for a few years but the focus will be more and more on generating profits for its shareholders and bonuses for the directors. In the longer term it will most likely be swallowed up by a larger bank regardless of the spin. Would this new entity be more vulnerable to takeover? Yes. Currently it requires 75% of individual members (or at least those who bother to vote) to change the Credit Union constitution. With a listed company as little as a 20% shareholding can exert considerable influence over a board of directors. MyState are telling us that the newly legislated 10% limit on individual shareholdings will prevent this but this is obviously nonsense. If I bought up 10% of the shares as they come on the market, my wife another 10% and each of my children 10% we could stack the board and control the company. Unrealistic? Not at all. Well yes, for me and my family it might be, but you get the idea. And, anyway, what is legislated by one government can be changed by another. Happens all the time.

Directors of ASX listed companies are legally obliged to work first and foremost for their shareholders – regardless of whether they are customers or not. Creating large profits allows the payment of good shareholder dividends and increases share value. Our banks are good at that; and they are good at swallowing up their smaller rivals. The ‘big four’ call the shots and set the prices that all the others follow. Their market power is unrivalled – except by the nationwide network of Credit Unions that MyState is trying to abandon in its quest to play ball with the big boys. How long before this “Tasmanian-based”company decides that it should move its headquarters to Melbourne or Sydney? How long before it “merges” with another to create “economies of scale”?

Why would our directors want to do this anyway? Well, there’s this notion that big is beautiful. That institutions must constantly grow to remain competitive, that they must have a “platform upon which to expand and grow” (like a balloon?). We’ve seen just how beautiful big is over recent times.  HIH Insurance was big, Lehman Brothers was bigger, Enron was biggest (like a balloon)  MyState is already big in the Tasmanian context with 117,000 members eligible to vote. As part of a nationwide and mutually supportive Credit Union Association it has access to a valuable established and efficient banking services infrastructure and also enjoys guaranteed financial support should this ever be required. As a listed company it loses all this.

One thing I did learn from the glossy mailout however was the answer to the question: Why has the Periodic Payment fee increased to $7? Answer: Because it is “comparable to charges levied by other financial institutions”. What would be interesting to know is: How much does it actually cost to provide this service? How much does it actually cost for a computer to automatically make a money transfer on a regular basis?  Community First Credit Union for example, the largest CU in Sydney, offers comparable interest rates and only charge $1.10 for PPs . They disclose their fees and charges clearly on their website. Try finding the equivalent on the MyState website. You won’t.

If MyState Financial was really interested in growing the business and providing genuine benefit to member/shareholders it could be far more competitive. It should charge low fees consistent with offering competitive interest rates thus benefiting members in direct proportion to the amount of services they use. Not having share price and dividends to consider our directors should concentrate on being highly competitive rather than simply raising fees just “because that’s what the others charge” (even if they don’t!). Low fees and charges would attract new members, provide real choice and an alternative to the banks. Merging with TPTL won’t.

I look forward to receiving the “Information Booklet” and learning why this demutualisation is considered such a good thing. Perhaps this will change my mind (but I’m sure they won’t make much mention of the huge increases in directors’ salaries and bonuses that would be part of the deal).

Patrick Synge

http://www.boatstasmania.com.au

PAT SYNGE, Proposed MyState Financial/Tasmanian Perpetual Trustees Merger

Since first announcing the proposed merger between MyState Financial and Tasmanian Perpetual Trustees Ltd the timetable has been constantly revised backward – a bit like the pulp mill. I imagine the GFC has complicated things more than a little.