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NHSB Goes for the Gold
For 'Very Nice Bank,' a very big change
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Business New Haven
8/4/2003
By: Michael C. Bingham
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'This is the community we serve. We don't want to be in Bridgeport, or Hartford, or other places. We're responsible for this community.'
- Charles Terrell
President & CEO, New Haven Savings Bank
1995
'The acquisition of Connecticut Bancshares and Alliance and the ability to finance the transactions through converting to a public company represent a once-in-a-corporate-lifetime opportunity.'
- Peyton R. Patterson
President & CEO, New Haven Savings Bank
2003
Turns out the rumors were true.
For months the local business community had buzzed with speculation that the new management of New Haven Savings Bank (NHSB) planned to cash in by taking the 165-year-old mutual savings bank public.
That is precisely what has happened. On July 16, NHSB announced that it had signed agreements to acquire outstanding shares of Connecticut Bancshares Inc. (NASDAQ: SBMC) and Alliance Bancorp of New England
(AMEX: AME). The firms are the holding companies for the Savings Bank of Manchester and Tolland Bank, respectively.
New Haven Savings will buy Connecticut Bancshares for about $605 million, or $52 per share, in cash, and Alliance Bancorp for about $72 million, or $25 per share.
When combined, New Haven Savings officials said their bank would become the second-largest savings bank and the fifth-largest bank of any type in Connecticut with 73 branches, $5.3 billion in assets, $3.8 billion in deposits and equity of approximately $460 million before calculating the financial impact of the stock offering.
At the same time and perhaps more importantly, the bank said that it would convert from mutual ownership to public stock ownership. NHSB will form a new bank holding company whose common stock will be publicly traded.
The investment bank constructing the deal is the Livingston, N.J.-based Ryan Beck & Co.
Under mutual ownership, an organizational model gradually disappearing from the American business landscape, NHSB is owned by its depositors, large and small. It is they who technically must approve the conversion from mutual to stock ownership.
Under such a plan, eligible depositors, employees and other parties will receive shares under the plan, with any remaining stock being sold to the general public.
To forestall criticism, the bank is treating the announcement as a fait accompli, which perhaps it is (see accompanying story). In the week following the bank's announcement up until press time for this issue, NHSB directors made themselves mainly unavailable for comment.
"The bank is in a 'quiet' period or blackout period while all the relevant legal documents are pulled together," said NHSB director Nathaniel D. Woodson, chief executive of the United Illuminating Co. "Given the legal sensitivities with all the filings that have to be made, I really think it's best [not to comment]," he added.
The reaction from City Hall was not reticent, however. "This is bad news for our local economy," said New Haven Mayor John DeStefano Jr. "It will shift NHSB's focus away from creating a strong local economy and push it towards earning the highest returns possible for shareholders all over the globe. Bigger isn't always better. But hometown is always best."
DeStefano added that the city's lawyers would oppose the bank's move during the regulatory process. He also urged New Haveners to contact the office of state Banking Commissioner John P. Burke to express opposition to the change.
Whatever the outcome of that effort, this much is clear: The bank founded in 1838 by Declaration of Independence signer Roger Sherman and operated, for good or ill, as a community trust ever since will never be the same.
Peyton R. Patterson, the former Dime Bank executive brought in two years ago to reinvigorate the stolid institution long known for its risk-aversion, defended the decision by portraying not merely as desirable, but nearly a matter of corporate life or death.
"We are embarking on a growth strategy fundamentally because we need to," Patterson told BNH. "For all its strengths, this bank needs new sources of customers."
NHSB, she says, is the market-share leader in its 21-town service area. That's the good news. "The bad news is that we've really saturated [that service area]. We need to [identify] new ways to grow the bank to generate the revenues and provide the financial stability that comes with customer growth."
Moreover, NHSB has endured three consecutive years of declining earnings, Patterson says, even as expenses for infrastructure upgrades such as branch automation have risen apace.
To compete with the Fleets, Websters, People's and Citizens banks, Patterson said, NHSB needed to step up to a bigger playing field.
In addition, she added, "We are very much a business-customer bank, and we've been very successful in generating loans in multiple markets throughout the state. But we don't have the ability to generate a permanent deposit relationship with them because we don't have branches [in other parts of the state]. We have to go where our business customers are, but we need more customers to [drive] earnings growth.
"In this business there are two ways to grow: You can buy it, or you can build it," said Patterson.
She likewise points to the fact that 60 percent of bank deposits in Connecticut reside in banks headquartered outside the state.
She brushes off the notion that, because the Tolland and Manchester banks' service areas are not contiguous to NHSB's, they may as well be buying banks in Nebraska.
"For us to be able to deploy capital to buy two banks that are additive as opposed to duplicative of where we are is a magical home run," she says.
Patterson likewise expresses dismay at DeStefano's decision to strike such a public pose in opposition to the deal.
"I am not surprised by the mayor's reaction," she says. "I think his feelings [about the deal] are very personal. The city and the bank have enjoyed a wonderful relationship, and I would never do anything to change that."
However, in this case "The mayor and I disagree. I believe we are doing the right thing, as do my directors. I have gotten countless letters and e-mails congratulating us. I take my pulse from the people we serve."
On the larger issue of accountability for the bank's decision to change, Patterson is clear: "I was asked to come to New Haven Savings Bank to grow the bank. I am carrying out a deliverable [sic] that the board of directors felt very strongly about. They wanted someone who had the experience to do it; and they wanted me to do it in a way that preserved what was unique and strong about New Haven Savings Bank - our community-mindedness, our service expectations with customers. That's why we're doing this."
Patterson also characterizes the board's decision to go public and proceed with the acquisitions as "absolutely unanimous."
As a financial entity, some observers argue that New Haven Savings has little to gain from demutualization, pointing to NHSB's predominant market share in its service area as well as its strong capital-to-assets ratio. The fact that the bank's officers and directors stand to reap enormous personal financial windfalls from such a deal has also provided ample fodder for critics of the deal.
As well, even as Patterson speaks of the urgency of "expanding our market presence across Connecticut," NHSB's service area is nowhere near contiguous to that served by the Manchester and Tolland banks. In that sense, NHSB might as well be buying banks in South Dakota.
On a more fundamental level, what may be most disquieting to some is the sense that an institution that for decades was operated first as a community trust and second as an enterprise has elected to reverse those priorities.
If true, it is of course hardly alone. In his newest book, The Politics of Fortune, Yale School of Management Dean Jeffrey E. Garten bemoans American's deteriorating business culture, especially the evaporation of trust and integrity during the 1980s and '90s, when "business lost any sense of a moral compass.
"Companies became just bundles of assets to be bought and sold," Garten wrote. "Employees became commodities to be hired and fired. The very notion of what constituted real value in the new economy was conflated with getting bigger and moving faster - but not with profitability, not with the welfare of employees, not with the development of communities."
Not very long ago it would have been unthinkable to examine New Haven Savings in such an unflattering light.
In a 1995 BNH interview, Charles Terrell said of his institution, "It's worked very well as a mutual. The principle issue is independence and control. Any stock institution can be bought out at the right price. And then the community ends up with a branch office."
And that, clearly, is the fear of those who, like DeStefano, fear another acquisition in NHSB's future - of itself - by a megabank like Fleet or Chase or Citibank not far down the road.
Charlie Terrell is dead. And so is Roger Sherman. BNH
BOARD OF DIRECTORS AND CORPORATORS
New Haven Savings Bank, Board of
Directors
Peyton R. Patterson
Chief Executive Officer
New Haven Savings Bank
Roxanne J. Coady
President
R.J. Julia Booksellers, Ltd.
John F. Croweak
Retired (former Chairman)
Anthem Blue Cross &
Blue Shield of CT
Richard J. Grossi
Retired (former CEO)
The United Illuminating Company
Robert J. Lyons, Jr.
President and CEO
The Bilco Company
Julia M. McNamara
President
Albertus Magnus College
Gerald B. Rosenberg
Senior Vice President and General Manager North American Region Bayer Diagnostics
Robert N. Schmalz
Attorney
Murtha Cullina
Cornell Scott
CEO
Hill Health Corporation
Nathaniel D. Woodson
Chairman, President
and CEO
UIL Holdings Corporation
Joseph A. Zaccagnino
President and CEO
Yale-New Haven Hospital and
Yale-New Haven Health System
New Haven Savings Bank, Corporators
1. Richard R. Barredo
2. Robert F. Behan
3. Roxanne J. Coady
4. Joseph R. Crespo
5. Sumner M. Crosby, Jr.
6. John F. Croweak
7. James J. Cullen
8. W. Edward Dowling
9. Robert L. Fiscus
10. Richard J. Grossi
11. A. Donald Janezic
12. John L. Lahey
13. Marvin Lender
14. Robert J. Lyons, Jr.
15. Julia M. McNamara
16. Daniel J. Miglio
17. William A. Minter
18. Walter H. Monteith, Jr.
19. David I. Newton
20. Peyton R. Patterson
21. Anthony P. Rescigno
22. Tomas Reyes, Jr.
23. Gerald B. Rosenberg
24. Robert N. Schmalz
25. Cornell Scott
26. R. Christopher Seaton
27. Patricia B. Sweet
28. Anthony J.Vallillo
29. Kevin F.Walsh
30. Nathaniel D.Woodson
31. Joseph A. Zaccagnino
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