Credit union merger to create powerhouse

Rita Trichur, Toronto Star — 24 Jun 2008

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.

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