Courtesy Say No To First Niagara
History will repeat itself Wednesday night when hundreds of New Haveners return to a school auditorium to ask regulators to halt a merger involving a bank by the Green. But the message has subtly changed — from the need to preserve depositor-owned community banks in 2003, to the need to stop big banks from destroying jobs and neighborhoods in 2011.
The discussion concerns a proposed $1.5 billion purchase of NewAlliance Bank, which is headquartered at Church and Elm Streets, by Buffalo-based First Niagara Bank.
Opponents of the plan — including New Haven’s mayor, several aldermen, and some labor and community leaders — are organizing a crowd to attend a Wednesday State Department of Banking hearing on the proposal. A Facebook page has gone up. (Above is a graphic from an organizing flyer.) The hearing takes place in the auditorium at Conte West Hill Magnet School at 511 Chapel St. from 5 to 9 p.m. Wednesday.
Some of the same people crowded the same auditorium in 2003 for a historic hearing that produced a historic result — involving an earlier incarnation of the same bank.
At the time the bank was called New Haven Savings. It was a mutual bank, owned by its depositors, a local bank where local people made decisions about lending to local people. The bank’s longtime president, Charles Terrell, resisted offers to sell the bank to make big money. As soon as he died, the bank’s directors brought in a turnaround specialist, Peyton Patterson, to take the bank public and merge it with other Connecticut banks to create a regional institution primed for an eventual takeover. But first New Haven’s labor and political leaders organized crowds to oppose the deal, claiming the loss of a community-run mutual bank would mean less community lending and an eventual sale to an out-of-state bank. They turned out so many opponents to a state hearing that a second hearing had to be scheduled. Patterson paid a private security team to follow her and shield her from the crowds at the hearings.
Patterson and company did finally win permission to take the bank public in 2004 and rename it NewAlliance. But first the state’s then-banking commissioner negotiated an unprecedented deal between her and opponents: NewAlliance would have to spend millions of dollars funding a competitor, a new community bank run by a not-for-profit and focused completely on local lending; as well as commit more of its own lending and charitable dollars to support local affordable-housing.
Seven years later, the competitor community bank has finally opened. It’s called START. And the opponents’ 2003/2004 prediction came true: an out-of-state bank wants to take over NewAlliance.
So some of the same opponents are revving up the troops. They’re asking state banking commissioner Howard PItkin “to just SAY NO!” to the deal, as one flyer put it. Pitkin said in an interview Tuesday that under state law he’s charged with ascertaining whether the merged bank’s lending policies and services would be “consistent with safe and sound banking practices and [would] benefit the economy of the state” and whether the bank has a solid community-lending (“Community Reinvestment Act,” or CRA) record and plan, among other factors. He also must decide whether the takeover’s benefits would outweigh “adverse effects.”
The bank has repeatedly defended its CRA record and said it will use efficiencies to provide better banking service to New Haven. Tuesday night, at a hearing in Manchester, First Niagara CEO John Koelmel promised to create a “powerhouse” that would benefit the state. According to an account in Hartford Business Journal, he vowed that the new bank will provide $750 million in small business loans, create a $30 million reduced-fee mortgage pool, and offer $100 million in community development loans over five years.
New Haven Mayor John DeStefano is leading the charge against the plan. He and other opponents say the deal will hurt New Haven by moving lending decisions to Buffalo. They say the local economy will suffer as a result of not just fewer loans to low-income people, but job losses caused by consolidation. Already, the bank has announced plans to lay off 229 workers, 126 of them in New Haven.
But this time some of the criticism is subtly different from last time.
No Sideshow
Paul Bass Photo
Last time a group of visible local figures — bank board members like then-Yale-New Haven Hospital President Joseph Zaccagnino and United Illuminating President Nat Woodson — were targets of protesters, accused of selling out their own community to enrich themselves. This time the target is more a faceless, out-of-state corporate bank (though departing NewAlliance CEO Patterson’s estimated $30 million payout from the pending deal remains a rallying cry).
Zaccagnino in particular had earned the ire of local labor leaders in 2003-‘04 because of an organizing dispute at the hospital. So organizers from Yale-affiliated unions, the largest politically oriented activist union in town, took on the bank fight as, in part, a related campaign. They turned out members and stood toe-to-toe at press conferences with Mayor DeStefano.
This time, labor leaders, like Central Labor Council President Bob Proto, have been absent from the mayor’s side at recent press conferences against the bank plan. (The president of the local carpenters union did show up at a press conference Monday.) Proto did not return calls for comment for this story; DeStefano said Proto is very much in the mix, and he has been in contact over the phone on organizing plans.
Last time, protesters were seeking to rescue New Haven’s last sizable mutual bank. This time the bank is already a statewide stockholder-owned corporation.
Another difference this time: New Haven is wrestling with the after-shocks of the recession — with job losses in particular.
“Ultimately to me this is about jobs and wealth,” DeStefano said in a conversation Tuesday. He predicted the bank layoffs announced so far are “only the beginning.”
“Now that START bank is launched, it’s not about starting another bank,” DeStefano said. “This company [NewAlliance] that’s extracting jobs from New Haven, how does this deal result in job generation rather than job termination? That’s where any discussions right now need to go about this merger. Right now all this merger is doing is collapsing jobs, not adding jobs. That’s a fundamental issue here.”
DeStefano said he doesn’t think it appropriate to name specific concessions opponents might seek from NewAlliance/First Niagara. Rather, he said, he hopes the public hearing’s turnout leads the bank to “engage” directly with opponents to discuss what specifically might turn the proposed deal into more of a “benefit” than a detriment for the local economy.
DeStefano did offer a general sense of what kind of concessions he’d like to see. “If you think about a lot of where New Haven’s been making its investments, it’s been in school reform and college-going,” he said. “On economic development it’s been around knowledge-based and life-science-based industry.”
It’s About “Big”
Unlike in 2003-‘04, the message now has to do with the role of ever-bigger banks in destroying the economy, said Bob Solomon, a Yale law school professor and START board member. Solomon was deeply involved in the 2003-‘04 protests. He’s deeply involved again this time; he plans to testify Wednesday night.
“Last time there was passion. This time there is a rational thinking about the problem of big banks,” Solomon said in an interview Tuesday.
“They started in Buffalo. They bought a bank in Harleysville, Pennsylvania. They’re now purchasing NewAlliance. They’re considering buying a bank in Boston. That’s the area they’re creating to position themselves to someone yet bigger [to buy them] five to ten years down the road.
“Even if that didn’t happen. New Haven is the southernmost and one of the poorest parts of the market. You get to cherry-pick in that market. Banks make more money from big loans than small loans.”
Solomon acknowledged that it’s rare for regulators to stop a proposed bank takeover like this one. But he argued the national regulatory landscape has changed since the 2008 economic collapse.
Big banks are now seen as a prime contributor to the collapse and the continuing mortgage mess in cities like New Haven, he said. And taxpayers spent billions to bail out “too-big-to-fail” banks.
The First Niagara-NewAlliance deal is seen as the progenitor of a new wave of bank mergers and takeovers. Solomon argued that it’s worth appealing to state and federal regulators who must approve this deal to consider the public interest, as required by law, in light of the meltdown’s lessons. Especially the lesson that bigger can be worse, not better. Big banks not only eliminate local jobs through consolidation and becoming removed from the local market, he said. They also can prove less financially sound because of the mortgages they purchase on the secondary market. Also, the bigger banks end up being responsible for a large percentage of local foreclosures, including cases where they don’t follow proper legal procedures or give borrowers a chance to keep their homes.
“A quick look at the foreclosure calendar in New Haven shows that the bank with the most foreclosures is Deutsche Bank,” Solomon said. “They just bought paper.”
Banking Commissioner Pitkin said Tuesday that he can’t weigh in on this proposed deal yet. He did say that “the whole issue is not new, whether bigger is better.”
“Bigger banks can do things that smaller banks cannot do,” Pitkin said. “They can make larger loans. They can deal with larger businesses. Our economy here in Connecticut has businesses of an array of sizes. So different banks can serve their needs. Different banks of different sizes can serve the needs of businesses large and small.
“If you look at communities throughout the country, larger banks support community activities, cultural activities, the arts. Small banks do, too, but proportionately larger banks usually put larger dollars to it.
“The problem that we just had in October of ‘08 would draw attention to the fact that when larger banks run into trouble, it’s very expensive to straighten those problems out.”
Pitkin will be one of the veterans of 2003-‘04 at Conte Wednesday night. He has worked for the banking department for more than 30 years. During the 2003-‘04 NewAlliance controversy, he served as the department’s administrator of depository institutions, which means he played a role in deliberations.
He’s not tipping his hand on his views this time around or what role he expects to play. “We haven’t stopped or given this the go-ahead,” he said. “We’re simply giving the public a chance to weigh in on it.