In a move that once again “paves new ground” for banking in Connecticut and New England, both New Haven Savings Bank and that city’s mayor have signed an unusual pact.
In a first-of-its-kind deal, New Haven Mayor John DeStefano Jr., an outspoken opponent of the contentious New Haven Savings mutual-to-stock conversion recently approved by state Banking Commissioner John P. Burke, has signed an agreement requiring him not to criticize the bank for five years.
If the mayor breaks the agreement, which requires all public statements be cleared by the bank, New Haven Savings could revoke its $25 million pledge to create a community lending institution.
“It binds me and it binds the city,” DeStefano told the New Haven Register. “I think they’re mostly concerned about me, to be honest with you.”
In return for his silence, the bank must hold up its end of the bargain and create a low-income and moderate-income lending program for New Haven area residents. Otherwise, DeStefano would be free to talk all he wants.
New Haven Savings is in the process of converting from a depositor-owned institution to a stockholder-owned company, a move DeStefano and other officials feared would reduce community investment and encourage a larger bank to acquire it.
When the conversion was approved last week, bank officials held a press conference announcing their community reinvestment plans. They did not mention the letter signed by DeStefano on behalf of the city during the conference.
The pledge prohibits the mayor from making any critical statements of the bank and requires him to “use his best efforts” to convince other bank critics to back down.
The agreement is in effect for five years after the bank conversion, a provision that binds future mayors. It comes as part of a larger agreement between the bank and the city, which provides that $25 million will be contributed by the bank’s charitable foundation to a newly formed foundation focused on New Haven, independent of the bank and governed by a cross-section of government, community and bank representatives. In addition, the bank’s previously announced $27.5 million commitment to its “NewAlliance for Neighborhoods” program now will include $6 million in loans to low- and moderate-income borrowers at below-market interest rates of 2 percent.
‘Odd’ Agreement
Kevin Handly, a banking attorney with Goulston & Storrs in Boston, said the mayor’s agreement “sounds very unusual.”
“If there was a court case and there were a determination made that one party had engaged in disparagement of the other party, a remedy that the court might apply might be to order the disparaging party to stop it,” noted Handly, “in effect creating a gag order. I’m not aware of any reason why that kind of remedy could not be imposed on a public official.
“What strikes me as odd is that it’s attached to the office of the mayor as opposed to the current incumbent individually. I’m not sure that a court in a civil suit would go so far as to impose the order on the public office itself and not the individual.”
Handly added, “Once again, this case is paving new ground.”
Non-disparagement limitations are often imposed as part of settlements in commercial disparagement and unfair competition cases involving banks. Limitation is commonly imposed on one or both parties, according to Handly.
“In this case it sounds to me that you have is an agreement, and it’s not being imposed by anybody, but rather accepted by the mayor. I question whether the current mayor has the authority to bind his successor. Then again, I’m sure his successor as mayor is not going to go out of his way to disparage anybody,” he said.
Handly could offer no direct precedent in which a public official volunteered to keep channel remarks through a bank.
“This is the first I’ve heard of something like this,” he said. “I’m curious to see what happens when the mayor holds a press conference that the bank declines to participate in. But the mayor probably doesn’t want to quibble with minute details like that.”
DeStefano, who is considering a run for governor, said the deal is not a gag order because the bank must meet its community lending obligations and create a $27 million pool for low- and moderate-income borrowers.
“If they don’t conform to the agreement, I’m free to criticize them and I will,” DeStefano said.
But other city officials are not convinced DeStefano had the power to sign a promise on behalf of the city without approval from the Board of Aldermen.
“I don’t believe the mayor has the authority to bind the entire Board of Aldermen,” said Jorge Perez, the board’s president.
The deal was signed by DeStefano, Thomas Ude Jr., legal counsel for the bank and Peyton R. Patterson, president and chief executive officer of New Haven Savings. All statements to the media must be cleared by the city and the bank, according to the agreement.
The bank conversion must still win federal regulatory approval. Paul McCraven, the bank’s senior vice president, said he hopes that happens within a month. Following that, he said, the bank would close the deal with Alliance Bancorp of New England and Connecticut Bancshares, parent companies of Tolland Bank and the Savings Bank of Manchester, respectively, as early as March.
Connecticut Attorney General Richard Blumenthal, another critic of the bank conversion who also is considered a potential candidate for governor, said his office is not bound by DeStefano’s deal.
New Haven Savings is a state-chartered savings bank serving the Greater New Haven area with 36 branches and $2.4 billion in assets. Combined with Connecticut Bancshares and Alliance Bancorp of New England, it would be the second-largest savings bank and the fifth-largest bank in Connecticut with 73 branches, $5.3 billion in assets, $3.8 billion in deposits and equity of approximately $460 million before calculating the impact of the stock offering.