Coming Together, With Hart

As Americans come together today in perfect harmony and unity, I wanted to talk about credit unions coming together with other credit unions and banks. Specifically, merger requirements that come from the Hart. The Hart-Scott-Rodino Act (HSR Act) that is. Under NCUA regulations, Parts 708a (Bank conversions) and 708b (Credit union mergers), NCUA requires notice of whether a credit union/s intends to file a HSR Act premerger notification with the Federal Trade Commission and, if not, an explanation why not. So, what is the HSR Act and what does it require?

The HSR Act

The HSR Act modified the Clayton Act and places requirements on certain merging organizations to file premerger notifications with the Federal Trade Commission and the Department of Justice (DOJ). Along with the notification, covered organizations must pay a filing fee and wait a waiting period that is usually 30 days. What is important to note is that not all mergers/acquisitions are covered by the HSR Act and whether a transaction is covered will depend on the assets involved. This excerpt from the FTC’s introductory guide is helpful:

1. As a result of the transaction, the acquiring person will hold an aggregate amount of voting securities, non-corporate interests (“NCI”), and/or assets of the acquired person valued in excess of $200 million (as adjusted), regardless of the sales or assets of the acquiring and acquired persons; or 
2. As a result of the transaction, the acquiring person will hold an aggregate amount of voting securities, NCI and/or assets of the acquired person valued in excess of $50 million (as adjusted) but at $200 million (as adjusted) or less; and 
3. One person has sales or assets of at least $100 million (as adjusted); and 
4. The other person has sales or assets of at least $10 million (as adjusted).

If the above conditions are met, both the acquiring organization and the acquired organization must file notifications. For adjusted asset levels, credit unions should review this document from the FTC.

What is an Asset?

Credit unions should take note that while the HSR Act places an emphasis on “assets,” much of what would be considered an asset by a credit union is exempted from consideration by the HSR Act. For example, the HSR Act exempts “acquisitions of bonds, mortgages, deeds of trust, or other obligations which are not voting securities” from consideration of asset size. 

This FTC Informal Interpretation is helpful and speaks directly to credit union mergers and determining the size of a transaction. In the letter the FTC confirms that cash, mortgages and leases, and certain real property are excluded assets. Please note that this letter is from 2002 and it is possibly out of date. However, what is clear is that you cannot just take a credit union’s NCUA asset size and use that to determine filing requirements.

Ultimately, when determining whether or not they are required to file a premerger notification, credit unions will likely need to speak to counsel. Enforcement actions can range from hundreds of thousands of dollars to over a million. The FTC also has a helpful guide available here that provides a good overview of the requirements.