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Big credit union merger called off; potential disruptions blamed

We believe this merger would help both credit unions achieve their ultimate goal to provide better value to our member-owners.

Tom Dorety, president of Tampa's Suncoast Schools Federal Credit Union, March 3, 2009

Benefits … and greater efficiency in several areas are just part of the merger potential.

Bucky Sebastian, CEO, Tampa's GTE Federal Credit, March 3, 2009

Never mind.

The proposed merger of two large Tampa federal credit unions to create the nation's fifth-biggest credit union was called off Wednesday. The credit union executives, Dorety and Sebastian, issued a joint statement saying that after taking a closer look at each other's financial books, they elected to call it quits.

"The potential disruption in operations to both organizations was extensive enough to outweigh the potential benefits of the merger," they said.

Suncoast Schools FCU already boasts more than $6 billion in assets, and GTE Federal is closing in on $2 billion. By credit union standards, these two are Big Boys. In fact, Suncoast by far is the largest credit union or commercial bank headquartered in the Tampa Bay area.

Surely, back in March when they first unveiled a merger interest and issued those thumbs-up statements above, they knew such a merger deal would be stressful.

So what "potential disruption" did they see after doing "due diligence" — financial talk for kicking each other's tires to see how sound the other institution really is — that merited killing a proposed merger?

I told Dorety on Wednesday that I was cynical about such vague reasons for ending a merger. Both credit unions have racked up consecutive quarters of losses. The economy stank in March when the deal was unveiled. It still stinks.

After all, the larger Suncoast Schools lost $76.7 million in 2008 and another $53.6 million in the first quarter of 2009. Smaller GTE Federal lost $27.5 million last year and another $21 million in the first quarter of '09. Neither institution declared how it did in the most recent quarter ended June 30. Odds are good it won't be pretty.

Perhaps, I asked Dorety, combining two institutions not operating on all cylinders is not the best strategy?

Dorety was gracious but denied either credit union found anything on the other's books to prompt an end to the merger.

The cost of short-term disruptions to service, systems and employees just outweighed longer-term benefits of becoming one institution, he stressed. He denied a bad economy influenced the decision to call the deal off.

As an industry, Dorety reminded me, credit unions are doing okay. Do you see credit unions seeking federal bailouts like the big banks? Other than Eastern Financial Florida FCU in Miramar, seized by regulators in May, do you see credit unions failing with the frequency of banks nationwide and in Florida?

Well, no. But neither Suncoast nor GTE is flying high. Bauer Financial, which rates credit unions from zero (big trouble) to 5 stars (great shape), tagged Suncoast with 2 stars (mediocre) several quarters ago. GTE had 3 stars at the end of 2008 but fell to 2 stars in the first quarter of '09.

In this deal, 2 + 2 would not equal 4.

Robert Trigaux can be reached at trigaux@sptimes.com.

Big credit union merger called off; potential disruptions blamed 07/15/09 [Last modified: Wednesday, July 15, 2009 9:23pm]
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