The merger of three of the four largest credit unions in Alberta will create a provincial giant, controlling more than 60% of the assets in Alberta’s credit union system. The merger is also likely to shape the future direction of co-operative financial services in the province.

In February, Servus Credit Union of Edmonton, Community Savings of Red Deer and Common Wealth Credit Union of Lloydminster announced they are considering a merger. Should the boards of the three credit unions approve the merger, the owner-members will be asked to vote on it at their respective credit union’s annual general meeting in March.

The combined entity will have $8.6 billion in assets, making it the third-largest credit union in the country outside of Quebec, and would serve some 355,000 members.

The CEOs of the three credit unions say they are talking merger for a variety of reasons, including being able to provide members with more cost-effective products and services; leveraging technology and best practices across the three credit unions; a complementary, non-overlapping branch network footprint; and increased clout, in terms of advocacy on behalf of the provincial system.

“We want to have the strength and size to be able to continue our growth here in the province of Alberta and to serve Albertans,” says Steve Blakely, president and CEO of Servus, which, with $4.3 billion in assets, is the largest of the three would-be merger partners.

Blakely gives another reason for wanting to combine: heading off competition from the big British Columbia-based credit unions
Vancouver City Savings Credit Union and Coast Capital Savings Credit Union, which rank first and second, respectively, among the country’s largest credit unions outside Quebec.

The trade, investment and labour mobility agreement (TILMA) between Alberta and B.C., which kicks in in April 2009, will allow financial services companies in either province to operate in both provinces. The deal is meant to remove most trade barriers and effectively harmonize regulations in the two provinces. Blakely believes the B.C. credit unions will try to enter the lucrative Alberta market at that time.

“We want to be of similar size [to the big B.C. credit unions],” says Blakely, “to have the financial wherewithal to compete favourably, in terms of pricing and so on.”

What’s notable, however, is that the heads of the other two credit unions in the proposed merger don’t share Blakely’s concern about out-of-province competitors.

“I’m not worried about that for one minute,” says Murray Haubrich, president and CEO of Community Savings, which has $2.7 billion in assets. “My position is that competition is good; it keeps us on edge.”

Haubrich says that one of the main advantages of the proposed merger is that it will create a credit union that stretches across most of the province.

“This is giving us an opportunity to leverage our capital, to put more and more branches where the credit union way isn’t available,” he says. “The merger is a logical step for us, and a natural evolution.”

The three credit unions were at a point in their growth, Haubrich says, at which they were facing direct competition with each other. “Our [branch footprints] don’t encroach on one another, but we’re getting close,” he explains. “And we’re starting to compete for people. That’s a very tough thing in Alberta.”

Jeff Mulligan, president and CEO of Common Wealth, which has $1.6 billion in assets, agrees: “If we waited another year, the three of us would be competing vigorously. It doesn’t make sense for us to use credit union members’ money to compete for credit union members.”

First Calgary Savings, the third-largest credit union in Alberta, with assets of $1.9 billion, is pursuing its own growth strategy and has declined the invitation to join the merger — surprising no one.

Since 2004, First Calgary has partnered with Langley, B.C.-based Envision Financial, which has assets of $3.4 billion, in an arrangement that sees the two credit unions share operational and technology functions, among other things. The partnership, known as the Pathways Project, allows First Calgary to provide members with service across provincial boundaries while retaining local autonomy and branding.

“You can’t pull the cover over yourself and pretend you can just grow in your own market, not over the long term,” says First Calgary president and CEO Dave Gregory, who believes provincial governments are moving in the direction of allowing credit unions to expand across provincial borders.

@page_break@Gregory says that the Pathways Project has been structured to allow other credit unions to join the partnership in the future. And should TILMA allow for credit unions from Alberta and B.C. to merge, First Calgary and Envision might choose to go that route.

“Certainly, we would have to go to our members first,” he says. “But my belief is there would be no resistance to a merger if and when that became legal, simply because we’ve grown to understand the advantages of working together.”

Both First Calgary and the three would-be merger partners say they can co-exist, and even work together, in Alberta. “Our two strategies can be complementary one day,” Gregory says. “I don’t see any reason they can’t be.”

Nevertheless, the new credit union created by the merger would almost certainly expand into Calgary, where the three credit unions are currently underrepresented and where all of First Calgary’s branches are located. That doesn’t concern First Calgary.

“Being fearful, to me, is not a strategy,” says Gregory, who notes there is already plenty of competition in the province from the various big banks and Edmonton-based ATB Financial. “You build your strategy around what you do well, and then you execute. If you stay focused, you will get your share of business.”

All four major Alberta credit unions support the credit union system in the province, which includes 30 or so other co-operatives, all of which are significantly smaller than the big four. The four CEOs say they will continue to work to keep the system well funded and strong. “If any small credit union were to get into trouble [financially],” Mulligan says, “we would all be painted with the same brush.”

All three partners in the proposed merger say they’ve been approached by smaller credit unions inquiring about joining the merger, but the partners have decided to concentrate on the merger of the three before considering new partners.

Mulligan says the three partners in the merger intend to meet with the management teams of the smaller credit unions this spring in a series of “fireside chats” to let them know how the merger is proceeding and to assure them of their commitment to supporting the wider Alberta credit union system. In time, the merged entity would be able to offer smaller credit unions in the system several strategic options, including affiliation, franchising or merging.

“The merger isn’t going to have immediate effect on smaller credit unions one way or the other,” Haubrich says. “But they are going to be faced with long-term decisions. We think, in two or three years, a lot of other credit unions are going to want to join us.” IE