The deal is still in the hush-hush stages, but a possible partnership between a de novo bank and a credit union run by an Indian tribe could set a precedent in a state accustomed to banks buying and selling each other.
The organizers of the New London-based Bank of Southeastern Connecticut and the executives of the Pawcatuck-based Connecticut Community Credit Union were close-mouthed on the possible partnership.
Bank of Southeastern Connecticut organizer Michael Ciaburri would say only that while there is no formal agreement between the institutions, they are in discussions. He did concede that his bank, which organizers hope will open in early fall, could benefit from a partnership. Since the credit union in question serves the Mashantucket Pequot Tribal Nation, which runs the Foxwoods Resort Casino, as well as any workers in the area – including those at Foxwoods – the union could bring profitable business to the de novo bank.
“[The fact it includes Foxwoods], in itself, adds a lot of benefits,” Ciaburri said.
If the institutions negotiate a successful partnership, the credit union, which has three branches, including one in Foxwoods, could change its name to Bank of Southeastern Connecticut, Ciaburri told The Commercial Record last year. But that has not been determined.
But if the credit union did change its name, that would fulfill a goal of the bank’s holding company, Southern Connecticut Bancorp. The company aims to spread its banks – which include the Bank of Southern Connecticut – along the southern coast of Connecticut from New Haven, where the Bank of Southern Connecticut is located, to the Rhode Island border.
Executives at the credit union did not return phone calls.
Ciaburri also said such partnerships are fairly uncommon.
“It depends,” he said. “It’s a unique situation because this one is owned by an Indian tribe.”
‘Strange Bedfellows’
Although Ciaburri and the credit union executives did not explain how their particular partnership could work, there are many benefits for a bank and a credit union that become partners, according to Keith Leggett, senior economist at the American Bankers Association.
“[These partnerships are] rare, but it has happened,” he said.
Leggett said he knows of several cases of banks acquiring credit unions and some of banks and credit unions becoming partners. There are many reasons for the partnerships.
Because credit unions often have limits to how much they can loan and because banks often have the ability to offer more complex products than credit unions, there are benefits for both institutions. If a credit union can’t give out a loan and is in a partnership with a bank, the credit union can originate the loan and the bank can provide it, Leggett said.
Bank One had some partnerships like that with credit unions in Texas, where Bank One did some business-loan participation, Leggett said.
Another type of partnership can occur when banks provide services like credit cards to credit union customers. Often, the credit cards may be branded with the credit union’s name and customers might not realize their credit union isn’t backing the card.
“There are cases where banks provide back-room operations [like credit cards],” Leggett said.
Credit card issuer MBNA has been acquiring credit unions’ credit card portfolios, he said.
“What you find is these are occasions where strategic alliances are made,” he said.
The Connecticut Community Credit Union’s attractiveness likely comes from its association with Foxwoods, Leggett said, but he stressed that he is not familiar with either the credit union or the Southeastern Bank of Connecticut.
“If it’s associated with a casino, that could be driving a lot of it,” he said.
The credit union has about $18 million in assets.
“It’s not a large institution,” Leggett said.
Although there has historically been some animosity between banks and credit unions – the Connecticut Community Credit Union’s Web site lists reasons why customers would do better to bank with a credit union instead of a traditional bank – partnerships like the one these two Connecticut institutions are considering are based on strategy, Leggett said.
“Firms are making business decisions based on strategic principals,” he said. “Business has a tendency of creating strange bedfellows.”
Indeed, many credit unions will deposit excess liquidity into certificates of deposit at traditional banks, Leggett said.
“What you’re looking at is a strategy,” he said.
And strategy could pay off for the bank if the partnership goes through. In addition to providing services to the Mashantucket Pequot Tribal Nation and workers at Foxwoods, the Connecticut Community Credit Union provides services to residents and workers in Stonington, North Stonington, Ledyard, Preston, Mashantucket and the contiguous towns of Voluntown, Griswold, Lisbon, Sprague, Sterling, Plainfield and Canterbury, employees of Davis Standard and employees of the Rand-Whitney Container Board Corp., according to the credit union’s Web site.
The Bank of Southeastern Connecticut’s headquarters will be located at 15 Masonic St. in New London. Ciaburri said earlier this month that he expects the state to award the bank a temporary charter soon.
