Following a storm of protest over the conversion of New Haven Savings Bank into a public company, a bill was introduced into the state Legislature in February that would minimize the profits gained by the bank’s board of directors and require a depositor vote on plans for conversion.

But at last week’s hearing with the state Department of Banking and the Connecticut Bankers Association – which opposed the bill’s depositor vote language – the association stated there is nothing wrong with the current bank conversion process and adding depositor votes to bank activity would only enhance the often-chaotic conversion process. The Legislature’s Banks Committee agreed, so the bill is moving forward without its more controversial aspect.

As The Commercial Record has previously reported, in the case of the New Haven Savings Bank conversion, Commissioner John P. Burke of the banking department backed the controversial change from a depositor-owned to a shareholder-owned bank, a move that will allow the sale of stock to the public and make possible the acquisition of two banks in Greater Hartford.

Upon completion of that conversion, the Department of Banking, along with some state legislators, urged lawmakers to reform the current mutual conversion legislation. But America’s Community Bankers, which represents virtually all mutual savings banks in the country, strongly urged the Banks Committee to abandon a bill that would make it easier for depositors to acquire the assets of mutual banks.

State Sen. Martin Looney, D-New Haven, has proposed a bill that would require depositor votes for the conversion of mutual savings banks. The bill also seeks to place limits on compensation that could be secured by banks’ top executives and boards of directors, especially financial gains resulting from any eventual sale of the bank.

‘Easy’ Profit

Many opponents of the New Haven Savings conversion – first announced back in July – said they were particularly outraged when the bank secured approval from the Federal Deposit Insurance Corp. to waive a depositor vote.

Hearings in the last two months, which were attended by hundreds of people, turned bitter as the bank’s senior management was accused of greed because they stood to gain millions from a $35 million stock compensation plan.

Testifying at a hearing of the Banks Committee, Charlotte Bahin, ACB’s senior vice president for regulatory affairs, said that under the proposed bill, activist depositors would have “an easy way to get a profit for nothing with no thought about the long-term viability of the institution or the community.”

The bill would allow activist depositors to pressure a mutual bank’s management and board to convert, said Bahin, which would be disruptive to the mutual savings banks in Connecticut and nationwide, as well as to their customers.

Not everyone in the banking industry is opposed to the measure, however.

Gerald M. Noonan, president of the Connecticut Bankers Association, said the CBA argued “with several bankers from mutual savings banks” during the legislative hearing.

“The [Department of Banks] commissioner agreed with us that the situation worked in New Haven, and the end result satisfied everyone, so why should we change the law?” said Noonan. “The main problem now is the depositor vote issue. The people in New Haven seem to feel that the depositor vote should be voted on by the depositors. But, depositors have no legal rights in the bank, but they do get the rights to buy stock first. So we have agitating depositors from all over the country who find mutual savings banks that have good capital and open accounts with them. Many banks won’t do it because they don’t want to open outside of their market.”

Bahin said each insured depository institution should have the right to convert its charter when it is in the interest of the institution to best fulfill its business plan.

“Each mutual institution should have the ability to decide to convert or not convert based on the needs of the institution, its operating strategy, its need for capital and its plans for the future, not because pressure from depositor groups, community groups or others is being applied,” Bahin said in a statement to the committee.

Bahin argued that the bill would change an existing conversion process that provides protection “for depositors, the institution and the community.”

Noonan said that although the depositor vote issue ultimately was deleted from the bill and the legislation has gone from the committee to the Senate for a vote, there is still an overriding concern that the bill will be changed again. If passed by the Senate, the legislation next would go to the House of Representatives for consideration.

“Our concern is that when you get a bill out that not everyone is familiar with, anything can happen on the floor of the House,” explained Noonan. “Our concern is that radical changes are happening to the bill right now. The bill itself is not the end of the world; we don’t think it’s necessary, but it’s not a dangerous bill.”