Sydney Credit Union to go venture capitalist on 28th March? Alarm bells for finance media, APRA, ASIC here

Breaking story.

Should Credit Unions be allowed to be 'demutualised' by the back door? Alarm bells for APRA, ASIC and financial media here.

 This financial story seems to have flown under the radar of all the usual reliable commentators in the mainstream press: The Stephen Mayne’s at Crikey.com.au, the Alan Kohler’s of Eureka ezine and ABC TV, the Emma Alberici’s of 7.30 Report who has gone on maternity leave apparently, or the other sundry business sections of the press and/or quality Sunday or Four Corners programmes.

That’s a pity because it is of huge public interest at least here in Smog. So here goes and I hope it travels from here.

I just read one of the boring financial updates in bland black and white sitting on my desk from the Sydney Credit Union. Tragic really on a Sunday morning at 3.38 am. An early mark and a long day ahead but worth a post on this little pearler of an issue.

Remember the great stoushes over demutualisation of the NRMA car services “Mutual”. It was a non profit organisation with decades of public goodwill for that reason. Then the smarties realised they could make themselves rich by conning the members into “demutualising”, that is going corporate and for profit. Sure there were bribes of existing members involved and sure enough like voting anti IR Howard in, the majority of members went for it in yet another grand proof of Australian shortsightedness in the ‘Lucky Country’.

One reason I use a credit union like SCU is because they are not rapacious venture capitalists. For instance ‘Which Bank’ aka The Commonwealth Bank wants to finance Gunns Ltd in Tasmania? That’s right CBA is helping to clearfell millenia old rainforests in the southern state. They won’t tell you that but just check the The Wilderness Society and you will find it’s true.

So credit unions are a really good way of skipping the capitalist pigs in the financial sector, just as superannuation choice now means you can shift your super to ethical funds and out of say AMP who don’t care diddlysquat really.

Here are some choice quotes on the back page of the “Notice of special general meeting” Sydney Credit Union ANB 93 087 650 726 scheduled for “28^th March 2006 5pm 19 Second Avenue Blacktown”.

Well that’s cute as it is. Blacktown meeting place for such a critical defacto demutualisation meeting? For that’s pretty much what it looks like.

Under “Explanatory Statement/Introduction and Overview”

“a group of credit unions have been looking for ways to raise additional capital in ways that are consistent with their mutual status”

“after 12 months of investigation, the group believes that the following proposals meet their requirements”

Then follows what looks suspiciously like a device to effectively demutualise. In summary drawing on my rusty corporate law knowledge, speaking as a solicitor now, they intend to create a separate trustee company CMLA which will then be allocated special shares from Sydney Credit Union. Special in the sense of non voting shares in SCU but which do receive dividends etc which presumably will be CMLA’s main asset. And SCU’s main financial exposure too. Then CMLA will issue its own unit trusts to financial investors, the access point of for profit “capitalist pigs” if you like to CMLA in turn financially linked to SCU funding.

For instance, to quote:

“each Credit Union will pay a dividend on the Tier 1 shares to the trustee [CMLA] and the trustee will then pay dividends on the units it issues to the professional investors”

And what of governance issues? The venture capitalists running CMLA will promote this property venture, and that share portfolio, and buy this business and promote that dodgy brothers deal etc? Or they will be highly ethical and high integrity in their business activities? Will they for instance satisfy say the Ethical Investment groups who run superannuation funds for investment which just might be a desirable approach sought by the majority of SCU community members who deliberately stayed away from banks for that very reason? No one knows. It’s all on trust. CMLA is said to be a member of CUNA, some body in the USA for credit unions (mmm good or not?) with a web page here:

www.cunamutual.com

 By this way will SCU will be like any other bank? Are they outsourcing this non mutual, for profit activity which is dependent for initial cranking up on the good funds of the SCU membership? It is our money being invested in setting up CMLA. What for instance if CMLA loses in the big bad game of financial corporates like HIH, like Weston, like a thousand others? It will be SCU that loses its investment via dividends out of SCU funds such that depending on how big the drip drip drip of the set up, members fees could sky rocket. Will CMLA be the proverbial vortex sucking SCU money dry?

On the other hand what if CMLA does really well? Who will profit? Not SCU members. It will be the unit trust holders in the investment vehicle. How many board members of SCU will have unit trusts I wonder? Or their financial associates? Indeed who are the big boys behind this restructure? None I hope. Because that would be a big conflict of interest.

Keep in mind too SCU recently merged with a couple of other CU which from memory were Prospect and possibly one other. So all the ducks seem to be in a row.

There is some deferential language in there about ASIC and APRA, the financial regulatory bodies here in Australia, who were bloody useless protecting us from the HIH disaster sending insurance rates through the sky, having to play catch up with prosecutions to save face on the likes of Adler and Williams. More recently we have Multiplex and Weston (or something like that) financial farces, all spilt milk really, of more narrow impact of little credit to ASIC or APRA.

Is Sydney Credit Union’s new CMLA proposal this 28^th March another ‘capitalist pigs in the trough’ exercise or a genuine attempt to do good things with members hard earned non profit organisation? My general experience of Howard’s Australia this last 10 years gives me great cause for concern actually. It looks increasingly like money under the bed time is approaching here in Sydney.

We are assured for instance that ASIC and APRA are happy with all this. “The Board” unanimously supports it. But where is the legal advice allowing for this backdoor defacto demutualisation? No mention in the briefing note.

Remember the salutary ‘It’s a Wonderful Life’ with Jimmy Stewart. I told the staff about it at SCU years ago but they had never even heard of the great movie about how a credit union stood up against a rapacious bank owner and kept the local town civil and fairly decent and rewarded the credit union manager with huge social capital when he thought his life was over in a financial scandal totally out of his hands or control. People trusting people and helping people, that’s what is at stake here too.

Are we about to see the symbolic ritual killing of Jimmy Stewart here at the SCU?

Frankly I feel a little cheated as good as SCU have been for me and little ecology action sydney this last 5 years or so.