Pub. 4 2015 Issue 8

October | November 2015 23 l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s FCS Southwest kind of merging with Farm Credit West As FCW readers know, the FCA is forcing a shotgun merger of FCS Southwest, which serves most of Arizona, into Farm Credit West, which serves portions of California. This forced merger follows substantial loan losses, and possible loan fraud, at FCS Southwest, which in turned triggered a restatement of FCS Southwest’s financial reports for recent years. This merger is moving forward very much in the shadows with almost no publicly available information about it. In particular, neither a disclosure statement nor ballot materials pertaining to the merger have been posted on either association’s website. However, it has been possible to access on the Farm Credit West website a recent video presentation to Farm Credit West member/borrowers urging them to vote for the merger. Unfortunately, it is not possible to print any of the exhibits displayed in the video that summarize the terms of the deal – one must take notes as the video plays, hardly a very transparent process. Although Farm Credit West will acquire the shares of FCS Southwest, FCS Southwest and its subsidiaries will not be merged into Farm Credit West for at least three years. That is, FCS Southwest will be held at arms’ length until such time as all litigation related to FCS Southwest’s problems has been fully resolved. Interestingly, though, FCS Southwest customers will become customers of Farm Credit West. One can reasonably conclude that FCS Southwest is essentially being liquidated. However, for patronage purposes, FCS Southwest borrowers will be kept in a patronage pool separate from Farm Credit West’s pool, which will have the effect of imposing on FCS Southwest’s members future losses and expenses related to FCS Southwest’s past problems. Put another way, Farm Credit West, with the obvious assent of the FCA, is doing everything it can to protect its members from FCS Southwest’s problems and losses. It is not clear, though, how FCS Southwest’s member/ borrowers will be protected from possible Farm Credit West mismanagement of the resolution of FCS Southwest. Farm Credit West member/borrowers met on September 22 to vote on the merger, but apparently they will have 35 days to reconsider their vote. Final FCA approval of this deal is anticipated by October 30 or 31, with an effective merger date of November 1, but as noted above, it will not be a true merger, merely a cementing of Farm Credit West’s control of FCS Southwest. Although unspoken, the FCA has to be hoping that future FCS Southwest losses, and particularly judgments from pending and future litigation, will not render FCS Southwest insolvent, which might cause Farm Credit West to walk away from FCS Southwest. That outcome could create the first insurance loss experienced by the Farm Credit System Insurance Corporation (FCSIC), which in turn might trigger some probing questions on Capitol Hill. Interestingly, the FCSIC has yet to reserve for any loss in the FCS Southwest caper. Report FCS lending abuses to: green-acres@ely-co.com Bankers are continuing to send FCW reports of FCS lending abuses, such as FCS loans for rural estates, weekend getaways, and hunting preserves. Email reports of similar lending abuses in your market to: green-acres@ely-co.com Shawn Eidson 316-383-1368 | Dan Heinz 316-383-1415 | David White 316-383-1435 | Quinton Smith 316-383-1900 We’re a family-owned, Midwest financial institution, and we’ve helped community banks just like yours provide customers with financial services to rival even the biggest banks. Because we call many of the same communities home, we’re perfectly suited to help your bank – and your community – thrive. Our roots share the same soil. Client: Intrust Ad Title: Correspondent - Ranch Member FDIC I ©2015 INTRUST Bank intrustbank.com 33458_Correspondent_Flag_KansasBanker.indd 1 6/29/15 11:03 AM