Observers are saying personnel issues likely caused two small cooperative banks to call off a planned merger.
Norwood Cooperative Bank, a $430 million institution, and the $320 million Walpole Cooperative Bank had announced plans to merge in early January, but the plans quietly – and quickly – fell apart in the ensuing weeks until the parties called them off on Jan. 25.
Executives and attorneys involved in the transaction declined comment, but lawyers who have represented Massachusetts banks in such transactions say mutuals and cooperative bank mergers often are difficult to execute due to cultural and people issues.
Lawrence Spaccasi, a partner with Luse Gorman Pomerenk & Schick in Washington, D.C., said the banks’ management teams and the boards may not have the same vision.
When a merger doesn’t work, he said, “the management team of one bank may feel that they are going to be compromised more so than the other bank. It might even be a few directors or a small contingent that are unhappy with the terms and spread that [view] to management.”
The Norwood-Walpole merger would have resulted in brand-new Norwood Cooperative Bank President Christopher Dixon, who recently replaced retiring Norwood Cooperative President and Chief Executive Officer Ronald Mallette in that role, becoming president and chief executive officer of the combined institution. Walpole Cooperative board Chairman Donald Burgess was to remain as chairman of the combined board. Other top managers also were selected and named in the merger agreement, which is not a public document. But according to one industry source, they may have been weighted toward Walpole Bank staff.
Walpole Cooperative President and Chief Executive Officer Ronald Lestan, who was due to retire at the end of 2007, told Banker & Tradesman in January that when Norwood Cooperative approached him last year about a potential merger, his bank already had begun searching for a new chief executive officer.
“If we wanted to talk, we had to accept Chris Dixon as the new president, and from there it became question of who would head up loans [and] consumer products,” he said at the time.
Decreased Activity
Parties also can terminate mutual-mutual mergers if they find out something negative about the other bank’s asset quality, Spaccasi said.
Mutual-mutual mergers are easier to get out of than stock-bank mergers, he added, since mergers of publicly owned institutions – unlike those of mutual cooperative institutions – typically have expensive termination clauses of up to 5 percent of the transaction value.
Stephen J. Coukos, a partner at Boston-based Chu, Ring & Hazel, said a body of depositors in a mutual bank can object to a merger for any reason.
Merger agreements, such as the one Norwood and Walpole signed Dec. 21, are signed by each bank’s board of directors but announced before a depositors’ vote. However, they are still subject to that vote.
In the fall of 2006, a planned merger between Bristol County Savings Bank and Randolph Savings Bank failed following a vote of Randolph Savings’ corporators (a representative group of depositors).
“There was a strong feeling that the bank has been here for 150 years. One of them said, ‘This bank has survived civil wars, world wars and the Great Depression, and we should be able to go forward from here,'” Randolph Savings Executive Vice President Thomas H. Drummey commented at the time.
While some industry observers predicted in January that mutual bank mergers in 2008 would continue at the same fast clip as last year, Coukos said activity actually has decreased.
“One of my clients said those who thought about doing it had got their deal done,” he said. “Now, with the economy the way it is, people are focusing internally.”
With an eye on the tough lending and credit environment, Coukos suggested, banks are probably watching potential merger partners before making a move, to see how their loans turn out.
