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PACE CU to be folded into another CU
April 21, 2022
10:22 am
savemoresaveoften
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April 21, 2022

Dear PACE Credit Union Member,

You will soon be learning about a transaction that will set a new course for PACE. It will provide you with enhanced stability, eventual access to expanded banking services and a more certain future as part of another credit union. As Administrator, we believe this is an optimal outcome for PACE members.

As you know, PACE was placed into administration by the predecessor of Ontario’s Financial Services Regulatory Authority (FSRA) in September 2018 due to mismanagement and misconduct by then-members of senior management, who were terminated, and a lack of effective governance by PACE’s Board at that time. As Administrator, FSRA’s focus has been on ensuring that PACE serves its members and that its members’ deposits continue to be protected.

Why was this decision made?

The decision by FSRA to have PACE enter into this transaction followed a careful assessment of the various options available to PACE in light of the impact of pre- administration mismanagement and the COVID-19 pandemic. As part of this process FSRA determined the specific liabilities and assets to be transitioned to the other credit union and what stays with PACE (which will continue as a legal entity until a wind-up process is completed).

Once the transaction involving PACE’s core business closes, you will have membership in the other credit union which will honour your deposits and provide you with the services you enjoy with PACE. You will continue to be served by PACE’s employees and branches which was a critical part of this transaction. As a result, we are confident that this is the best option for PACE and its employees and members.

What happens to membership, investment and profit shares?

FSRA has determined that PACE’s investment and profit shares (which are held by about 2% of PACE members) will, along with PACE membership shares, remain with PACE and be addressed as part of the wind-up of the PACE legal entity, in accordance with legal requirements.

As FSRA previously communicated in April 2021, investment, profit and membership shares cannot presently be redeemed due to PACE’s capital levels being below regulatory requirements. Disclosure provided to members at the time of purchase of the investment and profit shares specified that these shares are not insured, nor are they secured by specific assets, and were subject to risk and potential loss.

If you hold investment and/or profit shares, there are two important points you should understand:
• Due to the current capital position of the credit union, which has been adversely impacted by the previously mentioned activities of prior management and the subsequent losses that have arisen, as well as challenges to its ongoing operations caused by the pandemic, you will not be able to redeem your investment and/or profit shares at this time.
• Investment and profit shares will be dealt with as part of the eventual wind-up process of the PACE legal entity. We can’t speculate on the timeline for completion of this process nor the ultimate outcome.
Membership shares also cannot be redeemed at this time, and will be similarly addressed as part of the PACE legal entity wind-up process.

If you require any other information about your investment, profit or membership shares, please contact FSRA as 416-250-7250 or 1-800-668-0128. You can also email us at contactcentre@fsrao.ca.

Who will administer what is remaining of PACE?

FSRA as Administrator of PACE will continue to vigorously pursue legal claims against the former senior management and certain former directors of PACE, as well as others, to recover damages and losses caused by their mismanagement. FSRA will also determine the process for the eventual wind-up of the PACE legal entity.

FSRA has worked hard to balance various interests to achieve the best outcomes under the circumstances. This could not have been done without the loyalty of PACE members, as well as the dedication and support of PACE leaders and employees over the past few years and their unwavering commitment to the best interests of PACE members. In particular, FSRA would like to thank David Finnie, PACE CEO, and his senior leadership team for their strong management and dedicated service to PACE during a very difficult time.

We appreciate your ongoing loyalty to PACE and believe you will be well served by the new credit union partner.

Please note that in light of the transaction, PACE will not be holding its Annual General Meeting this year.

More details on the transaction will follow in the days and weeks ahead.

Yours truly,

Mark White CEO
Financial Services Regulatory Authority

cc. David Finnie, CEO, PACE Credit Union

April 21, 2022
11:18 am
Norman1
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PACE CU is going to sell its branches and loan book (its assets) to another credit union. Part of the purchase price will be the other credit union assuming the liabilities for its book of deposits:

… As part of this process FSRA determined the specific liabilities and assets to be transitioned to the other credit union and what stays with PACE (which will continue as a legal entity until a wind-up process is completed).

PACE CU will continue as a shell of its former self until it is wound up.

Another credit union would be crazy to buy outright or merge with PACE CU and inherit potential liabilities from what PACE CU's previous management did.

April 21, 2022
11:32 am
Pythagoras
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savemoresaveoften said
April 21, 2022

If you hold investment and/or profit shares, there are two important points you should understand:
• Due to the current capital position of the credit union, which has been adversely impacted by the previously mentioned activities of prior management and the subsequent losses that have arisen, as well as challenges to its ongoing operations caused by the pandemic, you will not be able to redeem your investment and/or profit shares at this time.

cc. David Finnie, CEO, PACE Credit Union  

Have people lost their savings? Or will people lose their savings?
I keep on reading no bank has failed in Canada in over 20 years - but is this not a bank that failed?

April 21, 2022
11:57 am
Loonie
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I wonder, does "liabilities" include potential lawsuits, or was that dealt with already? I didn't keep up with the other long thread.

If it's simply a matter of numbers on balance sheets etc., then I can see where another CU might take it on at a realistic price, maybe zero for all I know.

It sounds like they have already made the deal but for some reason aren't yet ready to disclose the purchaser's identity.
I would think it would have to be a large CU that is already into branches as they say they are keeping branches open and staff employed. Perhaps Meridian, Alterna or DUCA? Meridian is still taking its lumps from motusbank as far as I can determine, and DUCA is preoccupied with trying to go federal. Alterna CU's rates are so crappy that they would lose most of PACE's members. I dunno.

April 21, 2022
12:54 pm
Norman1
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Loonie said
I wonder, does "liabilities" include potential lawsuits, or was that dealt with already? I didn't keep up with the other long thread.

Yes, "liabilities" does include potential lawsuits. Only one has been settled: The one involving those PACE Financial and First Hamilton Holdings preferred shares that were sold through PACE CU branches and PACE Securities.

Very unlikely the other credit union would be assuming any liabilities from potential PACE CU lawsuits as part of the purchase price.

April 21, 2022
1:00 pm
Norman1
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Pythagoras said

Have people lost their savings? Or will people lose their savings?
I keep on reading no bank has failed in Canada in over 20 years - but is this not a bank that failed?

People could if they put their savings into PACE CU shares instead of PACE CU deposits.

At the moment, the credit union hasn't failed. But, it has been seriously wounded and been operating below normal capital requirements with special permission.

April 21, 2022
1:09 pm
COIN
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I've been involved in 2-3 of these type of mergers/takeovers.
1) A "war room" is set up.
2) It is "open komodo" time for PACE.
3) Potential purchasers will have their lawyers/accountants go over all the contracts and books with a fine tooth comb.
4) The purchaser will "cherry pick" the assets (loans and mortgages) and liabilities (deposits).

Very important question: Will I get my PACE membership fee reimbursed?

April 21, 2022
1:23 pm
Loonie
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Norman1 said

Loonie said
I wonder, does "liabilities" include potential lawsuits, or was that dealt with already? I didn't keep up with the other long thread.

Yes, "liabilities" does include potential lawsuits. Only one has been settled: The one involving those PACE Financial and First Hamilton Holdings preferred shares that were sold through PACE CU branches and PACE Securities.

Very unlikely the other credit union would be assuming any liabilities from potential PACE CU lawsuits as part of the purchase price.  

So, if purchaser could avoid being responsible for lawsuits, why do you think they'd be crazy to buy it at any price? It seems that a credit union has agreed to do so.

Since it's an acquisition, not a merger, I don't imagine it will require a membershi meeting to ratify. Would you agree?

April 21, 2022
1:43 pm
AltaRed
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Like in any 'typical' bank/CU failure, it is the book (deposits/liabilities and some/most? of the assets) that are being purchased (taken on) by another CU, not PACE Credit Union Ltd. itself as a corporate entity with the rest of its baggage.

The new CU may also pay something (or be paid to take) the net balance of the office assets, equipment, leases, employee contracts and benefits, pension plans, etc. that are the operating part of the business. The rest will stay with the PACE corporate entity for wind up. I would suggest the membership has no say because it is not the corporate entity that is being sold.

An analogy would be a homeowner who is selling some of his/her assets such as an auto to another person but retains a house and other financial assets.

Re: post #8... it is a good question whether the membership fee will be reimbursed, or whether it is near worthless (part of the corporation) and a new membership may need to be purchased in the new entity. The fact the membership itself has been discussed separately in the release is significant enough to warrant speculation.

April 21, 2022
2:34 pm
Loonie
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I was actually wondering if the purchasing CU would require a membership ratification. The fact that Pace is under Administration would, I think, remove that capacity from its members? They aren't having an AGM either as Admin is not accountable to them.

Membership fees are usually quite small, between $1 and 100, but they do vary. I would think it would be fair to transfer the membership to the new CU along with the fee already paid, but that may not work legally or bureaucratically.

April 21, 2022
2:54 pm
Norman1
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PACE CU has been operating below normal CU capital requirements. The situation is similar to a breach in one of its loan covenants. A financial institution's shareholders don't really have much say under such conditions.

The membership fee wasn't really a fee. It was a minimum purchase of PACE CU shares. Around $175 per member, I think.

That share money won't be going anywhere. Share redemptions are blocked. There is a question how much of it, if any will be left, after PACE CU is wound up. Some of it may be used to make up losses in the loan book.

The new CU won't assume all the deposits without receiving assets worth at least the deposit liabilities.

April 21, 2022
6:24 pm
AltaRed
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Norman1 said
The new CU won't assume all the deposits without receiving assets worth at least the deposit liabilities.  

I agree but I would expect members have been pulling deposits and thus that wouldn't be a problem. More likely a deficiency because even with deposit insurance, who in their right mind would continue to keep much in PACE?

As I mentioned in the other thread, PACE's assets have not declined that dramatically between 4Q19 and 4Q21 (from $1.11B to $0.95B)

April 21, 2022
8:47 pm
Loonie
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There will be GICs that people couldn't cash yet, but it would be reasonable to expect deposits to be down.
I've never dealt with Pace.

April 21, 2022
9:14 pm
Norman1
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That's likely the case: PACE CU issued lots of matching GIC's to fund those assets/loans and the GIC funds are locked in until maturity.

As well, the credit facility that FSRA provided PACE CU is only $500 million or $0.5 billion.

So, deposits are likely not down significantly.

Deposits is not the issue. PACE CU's problem is that, after paying their share of the settlement with those member who were sold those preferred shareholders out of its capital (retained earnings + member share money), there isn't enough capital left to meet the regulatory capital requirements for the size of its loan book.

April 22, 2022
7:05 am
JenE
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Re Norman1’s reference to $175 Pace Membership fee - I joined Pace in Aug. 2018 and here is what I reported on this forum:

“….Not only do you get 3.4% interest, PACE pays the $175 member share for you. Then, if you keep your account open for 5 years, the $175 is yours to keep. AND, if you refer a family or friend member, each of you gets a $100 gift card to spend at select stores. This is very limited, but still not bad for some people living in the right area. Read about it under PACE rewards”.

Hmm…. I wonder if the “free” membership was to draw more funds, and members, in. Fortunately, my GICs have matured without incidence.

April 22, 2022
7:26 am
COIN
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JenE said
PACE pays the $175 member share for you. Then, if you keep your account open for 5 years, the $175 is yours to keep.  

I remember the $175 but I thought I paid for that in cash. I'll have to dig through my records, if they are in reasonably good shape.

I think I also joined PACE in 2018 give or take a few months.

April 22, 2022
8:05 am
Oscar
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I also joined in 2018. They paid the $175 and it was yours to keep after five years. Mine are in an account called "equity shares" and balance is a few dollars more than the original $175 as they transferred in balance from dividend savings account. However when I click on equity shares account I see available balance doesn't include the $175 and I have no access to the extra few dollars in the account either. I doubt it will ever end up in my hands but I am not out of pocket.

April 22, 2022
8:42 am
i_got_smucked_too
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Just announced.... Alterna Savings and Credit Union Limited (Alterna Savings) is picking up the bones. Check your inbox if you're a PACE member.

April 22, 2022
9:08 am
RWAbacus406
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I have been a member of a predecessor of PACE CU for substantially more than half a century. The Uxbridge branch has the nicest and most professional employees that you could ever want in any banking scenario. While the staff has changed over the decades, I've never been seen any change in that atmosphere in which the Credit Union philosophy holds to this day.

My SHARE ACCOUNT contains (contained??) $220.47. When I joined 55 years ago, the share account was but a few dollars; I can't remember the exact amount but think it was less than $10. Over the years it was increased gradually and each increase was taken from my chequing account (with advice that it was going to happen.)

It was in the CU building where I was introduced to PACE SECURITIES by an investment counsellor (Tajie Varicat) after the CU manager at the time advised that I was making poor investment choices using GICs.

The rest is history and this neophyte of an investor was certainly led down the garden path. What's $220 more in my SHARE account to the $196k originally lost in PACE Securities? Yes, I did get more than half that back - eventually.

I still have lots of GICs, my TFSA and "high-interest" savings in PACE CU. Is it time now to desert the Bailey Brothers Building and Loan? (AKA: movie - It's a Wonderful Life).

April 22, 2022
9:57 am
COIN
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I just checked my March 2022 PACE statement and under Equity Shares I see $1,175.00. Thanks to Jen I now remember the $175.00. For the life of me, I don't remember the $1,000.00 that is part of the $1,175.00 total.

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