Credit union merger to create powerhouse

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It was, at times, a rocky road to the altar. Now the impending union
is being cautiously celebrated as the critical first step toward
creating a national financial co-operative that could up the ante on
big banks.

Years in the making and temporarily thwarted by the
commercial-paper crisis, the long-awaited merger between Credit Union
Central of Ontario Ltd. and Credit Union Central of British Columbia is
finally set to close July 1.

With $8 billion in assets, the
combined entity will be known as Central 1. It will act as an umbrella
organization for about 195 member credit unions in both provinces,
providing a slew of payment, treasury, banking and trade services.

Chief
executive officer Donald Rolfe’s long-term goal, however, is to have
one central for all provinces. Preliminary discussions have already
taken place and official merger talks will probably begin in September.
Even so, he describes the interest from other provincial centrals as
"cautious."

"I say it is cautious because they want to see the
benefits first," Rolfe said in a recent interview at his office in
Mississauga. "Our challenge is how well we do the integration and how
well we demonstrate that the benefits are actually being captured."

Rolfe
understands the need for prudence. Just getting to this point has
proved challenging. The merger of the Ontario and B.C. centrals has
been in the works since the fall of 2006. Originally scheduled to close
last October, the move was twice delayed after both companies became
entangled in the non-bank asset-backed commercial paper crisis.

The
Ontario central had about $161 million in non-bank commercial paper,
while the B.C. central was holding about $23 million worth of the
short-term paper. With those "troubled" debt investments threatening to
derail the merger, the companies resolved to park that non-bank paper
in a limited partnership, segregating those assets from Central 1.

The
close of the transaction next week also comes nearly five years after
legislative delays scuttled a previously planned merger between the two
centrals.

Now, persuading others to get on board hinges on
Rolfe’s ability to prove this merger makes sense. Part of that involves
Central 1 demonstrating it is adept at building consumer awareness and
market share for credit unions.

Across the country, roughly one
in every three people – some 11 million Canadians – deal with financial
co-operatives. During the first quarter of 2008, affiliated credit
unions and caisses populaires across the country reported total system
assets of $106.4 billion, a 10.2 per cent increase over the last 12
months.

Deposits and demands for loans continue to blossom, but
credit unions are more popular in certain provinces than others. Quebec
has the highest penetration rate: roughly half of all residents conduct
some type of business with a caisse populaire. In Saskatchewan, about
45 per cent of the population are credit union members. British
Columbia has the third highest rate at 35 to 40 per cent.

That
stands in sharp contrast to Ontario, where only about 1.2 million
people – roughly 10 per cent of the province’s more than 12 million
residents – use credit unions.

Despite touting the benefits of
membership – credit union members are also shareholders – Rolfe
concedes that snagging significant market share from big banks in the
Greater Toronto Area will probably be an uphill battle.

So,
credit unions are focusing the bulk of their efforts on bolstering
their membership in small-town Ontario, particularly communities
proving popular with retiring baby boomers. The hot spots include
Cobourg, Port Hope, Elliot Lake and Port Perry.

"I am often
amazed why banks want to leave smaller communities if the clients with
the money are going to smaller communities – not that I want to be
telling the banks this," Rolfe said.