City Decries NewAlliance ​“Betrayal”

New Haven’s mayor crashed the party as another downtown bank prepared to be gobbled up by an out-of-state lender.

In what some local leaders called a long-predicted ​“betrayal,” NewAlliance bank announced its board has approved a $1.5 billion sale to Buffalo-based First Niagara Bank.

It was the denouement of a drama that started seven years ago, which unfolded as predicted by Mayor John DeStefano and other leaders upset about the loss of a major New Haven-based bank.

DeStefano Thursday afternoon wouldn’t say yet whether he planned to try to block the planned merger when it comes before federal regulators. He and local labor leaders staged a fight six years ago against a previous merger that created NewAlliance Bank, and won tens of millions of dollars in concessions in the process.

“At this point it is important that the community reflect on how this serves the local economy and job growth and wealth creation,” DeStefano said. ​“If we get to a point where we need to intervene, that is something we have to do.”

He was clear on how he believes this planned sale of NewAlliance will affect the local economy — making it harder for local people to obtain loans and support for community projects.

“Final decisions are going to be made in Buffalo now instead of being made at Church and Elm. We’re going to be at much further distance” from decision makers, DeStefano said. ​“That’s unfortunate.”

DeStefano also put the proposed sale in the context of the country’s recent economic slide. ​“The banks that got America in trouble were these big banks that were driven by this need always to” drive up profits for shareholders and therefore resort to risky lending practices, he noted.

Attorney General Richard Blumenthal, who’s running for a U.S. Senate seat, also weighed in with concerns.

He promised in a release to examine ​“potential legal ramifications” of the deal, which he said ​“raises significant questions” with ​“potentially far-reaching ramifications on bank customers, employees, the New Haven community, as well as the local and state economies.”

Earlier Thursday DeStefano crashed a conference call the bank held for investors. He posed a question to bank officials about the impact of the proposed sale (technically a merger) on the local economy. He predicted ​“more loan officers facing limits on what they can do, more employee turnover and a loss of ability of decision-making in New Haven,” according to an account in the Wall Street Journal.

“Those are the same questions we get each time we move to a new market,” First Niagara’s CEO responded.

Bank: Growth Helps New Haven

In an interview later Thursday, NewAlliance’s Paul McCraven disagreed with the assessment offered by DeStefano and other local critics. He called the pending sale a ​“tremendous opportunity” for New Haven.

McCraven, NewAlliance senior vice-president responsible for community development, also said the bank has always been up front about its plans.

“We’ve always said that our goal was to grow the bank. The stronger the bank became the more we could serve the community,” McCraven said. ​“This particular opportunity will really help us grow even quicker. That will allow us to provide better banking services. It will allow us to do more community investments. Under this new structure we will able to accelerate our lending and our philanthropic investments in the community as well as still maintain strong local decision-making. That’s one of the key points that we wanted to make sure stayed in place.”

McCraven added that the bank’s local foundation will remain in place, and independent. It gives over $1 million a year to regional causes.

In addition, he said First Niagara has agreed to spend $7.5 million of its own philanthropic foundation’s money in the New Haven region. He said he wasn’t sure what time period that commitment covers.

Under the proposed deal, New Haven would become the New England headquarters for Buffalo-based First Niagara. McCraven said the plan is to keep a strong ​“local decision-making team in place.”

He said it’s not yet clear whether current NewAlliance President and CEO Peyton Patterson will continue to head that team.

“Right now she is working closely with John R. Koelmel [First Niagara’s CEO]” on the transition, McCraven said.

Read the bank’s press release with full details of the deal here.

In a conference call with the press Thursday, Patterson (pictured) distinguished this proposed sale from ones that involve a healthy financial institution buying a struggling one (and thus raising regulator concerns). She called First Niagara and FirstAlliance ​“two banks that are individually on a roll with record revenue momentum.”

Patterson was asked about DeStefano’s concerns — and about whether she worries that community groups will try to derail the deal.

“We’re very confident in the regulatory process. You have two very clean and exceptionally strong institutions coming together,” she said, citing NewAlliance’s ​“outstanding” Community Reinvestment Act rating.

“With respect to the mayor, the mayor I think will be very pleased with the emphasis and focus and sensitivity to the markets in which he operates.”

Koelmel was asked about possible layoffs.

“There’s going to be some fallout from an employment standpoint,” he said. He predicted it would be ​“minimal.”

Seven-Year Drama

Bad blood between city leaders and NewAlliance goes back seven years.

At the outset, the drama starred the city’s last large locally owned mutual bank, New Haven Savings, a holdout against the trend of out-of-state megabanks gobbling local lending institutions. When New Haven Savings’ president died, board members looking to make a few quick millions (or more, in some cases) seized an opportunity. They brought in a crew to take the bank public and expand its reach, merging it with other banks elsewhere in Connecticut, and gave it a new name without the ​“New Haven” moniker. It was to become NewAlliance Bank.

A New Haven uproar ensued. From the mayor’s office to longtime depositors to community activists, opponents tried to stop the bank from getting permission to go public and expand. They feared New Haven would lose a locally rooted bank accessible to small businesses and homeowners in the city. They predicted that NewAlliance would eventually sell out to an out-of-state bank like New Haven’s other major lenders. NewAlliance brass promised to remain ​“New Haven’s” bank. State regulators struck a deal: New Haven Savings could become NewAlliance. But, in an unprecedented move, they would have to spend $25 million to seed the creation of a local competitor: a new community-focused New Haven bank.

This week the drama played out as the critics predicted.

On Thursday, NewAlliance announced another merger. It will become part of Buffalo-based First Niagara Group. The bank’s name will change to First Niagara. Its headquarters will no longer be in Connecticut.

Bob Solomon (pictured), a Yale law professor and board chairman of the not-for-profit First City Funding Corporation (FCFC), called the sale a ​“betrayal,” one that he had anticipated.

“Everyone who said: ​‘Soon as you can, you’re going to sell out,’” Solomon recalled. ​“They said, ​‘Not us! We’re doing this for the good of the community. We need to serve the needs of the community.’

“Seven years ago they said we didn’t need a new community bank, [that] this was a way to strengthen themselves so they can continue to do more in the community. We find out that that all they were concerned about — no surprise — was themselves. It’s a potential loss of capital. This becomes a bank not concerned about community, just a bank that sees us as one of many markets. The individuals who were getting rich locally — you get a lot of bites at the apple with NewAlliance, I guess. You get rich when it becomes NewAlliance. You get rich when it sells again. It all began with a state charter [for the original depositor-owned, mutual New Haven Savings Bank] for concerned individuals to build capital in New Haven.”

Opportunities For Competitors

Meanwhile, the local community development bank born from that originally controversy has, after years of delay, put out its shingle. It has moved into its first two storefronts, at Whalley and Sherman Avenues in the Dixwell/Whalley area; and on Grand Avenue in the Fair Haven neighborhood. It plans to open for business — concentrating on depositors, homeowners, and small businesses in the city — in a few months.

“The present plan is to open some time in early October,” said President and CEO Bill Placke. The open is waiting on final approval from the Federal Reserve Bank, the Federal Deposit Insurance Corporation, and the State Banking Department.

“I’m really pleased that we will be the only remaining locally owned, locally managed and governed community bank in New Haven,” Placke said of the news of the pending NewAlliance sale and a second pending sale of the Bank of Southern Connecticut. ​“We’re just thrilled to have the opportunity to be the go-to bank for local residents, small businesses and other organizations in the process of building a better New Haven in the same way we are.” The banks slogan is, ​“On Your Block, In Your Corner.”

START is the latest in a series of community development banks that have sprung up across the country in the past few decades. Prime examples: Chicago’s ShoreBank (the granddaddy), City First in D.C., and North Milwaukee State Bank. People like U.S. Sen. Chris Dodd see them as vital to rebuilding urban neighborhoods amid the current foreclosure crisis and economic meltdown.

The bank will be a for-profit subsidiary of a not-for-profit called First City Funding Corp., which formed with the $25 million from the state-brokered NewAlliance deal. The idea was to find a way to keep loans flowing to potential homeowners and small-business owners in neighborhoods like Fair Haven and Dixwell and the Hill as traditional local banks for-profit disappear.

Webster Bank, which has a branch on the same block as the NewAlliance at Church and Chapel, also hopes to capitalize on the pending sale. The bank is headquartered in Waterbury.

“While the merger may make sense for shareholders of both companies, it remains to be seen whether a merger that moves NewAlliance’s headquarters out of state makes sense for its customers,” said Webster’s regional president, Jeff Klaus.