Unions have an understandable dislike for doing business with nonunion employers. It’s a matter of self-interest. And as the City of Charlotte prepares to host the Democratic National Convention during September 3-6, a growing roster of labor and politically allied organizations are indicating their displeasure over the party’s decision to hold the event in that decidedly nonunion locale. Some groups, which include an apparently chastened Democratic National Committee, are shifting deposits from the Charlotte-based Bank of America (BoA) to a union-owned New York City institution, Amalgamated Bank. This exodus in large measure has been motivated by payback for BoA bankrolling much of the event. Yet this process, if taken far enough, could result in more investment decisions of the sort that put Amalgamated, and union depositors, in harm’s way not long ago.
Amalgamated Bank isn’t exactly a union. Yet it looms as potentially the most important labor organization in the country this side of the AFL-CIO. The full service lender was founded back in 1923 by the Amalgamated Clothing Workers of America. That union eventually morphed into the Union of Needletrades, Industrial and Textile Employees, better known as UNITE. In 2004, UNITE merged with the Hotel Employees and Restaurant Employees (HERE) to become a new powerhouse, UNITE HERE. The marriage, as Union Corruption Update explained in June 2009, would not last. Bruce Raynor and John Wilhelm, the respective bosses of UNITE and HERE, had a bitter falling out. About 100,000 Raynor loyalists within UNITE HERE had broken away a few months earlier and formed a new union, Workers United, re-affiliating with the Service Employees International Union. To say SEIU and UNITE HERE had bad blood between them was an understatement. Eventually, in July 2010, the two unions buried the hatchet and reached an agreement. Among the features of the deal, ownership of Amalgamated Bank would be transferred to Workers United, while UNITE HERE would retain ownership of union headquarters.
Amalgamated Bank is based at the same West Side Manhattan street address as UNITE HERE, 275 Seventh Street, and includes branches in New Jersey, California and elsewhere. It has about $4.5 billion in assets, serving some 650 unions. Until recently, it was wholly union-owned, the only such bank in the country. That status changed last September when a pair of private equity firms, WL Ross & Co. and Yucaipa Companies, each committed themselves to buying a 20 percent stake in the institution’s privately-issued common stock (subject to regulatory and shareholder approval), good for a combined $100 million. Ordinarily, these transactions would have been out of character for Amalgamated. But it had little choice. Federal Deposit Insurance Corporation and the New York State Banking Department each recently had cited the bank as dangerously undercapitalized.
Given the nature of this bailout, WL Ross and Yucaipa were logical choices for equity participation. The New York-based Ross, founded in 2000, specializes in turnarounds of distressed companies across a wide range of industries. It bears the name of founder and Chairman Wilbur L. Ross Jr., whose Forbes magazine-listed net worth in 2011 was $2.1 billion. Ross, 74, a resident of Palm Beach, Fla., served under President Bill Clinton as a board member of the U.S.-Russia Investment Fund and later as a privatization issues adviser to New York City Mayor Rudy Giuliani. He’s been a major donor to the Democratic Party, though recently he’s given sizable sums to Republican candidates as well. And during the last several years he’s moved into mortgage rescues. WL Ross & Co. at the onset of the foreclosure crisis bought out H&R Block’s troubled Option One mortgage servicing business and the bankrupt American Home Mortgage Investment Corp.
Yucaipa Companies, founded in 1986, from the start has been under the control of Ron Burkle, whom Forbes listed last year as worth $3.2 billion. Burkle, 59, a Los Angeles-area native who made his original fortune in supermarket chain buyouts, is a close friend of the Clintons. How close? Bill Clinton in 2002 became a senior adviser to Yucaipa, serving as a middleman in locating and arranging business deals. And Burkle raised more than $1 million for Hillary Clinton’s 2008 presidential bid. Burkle’s Democratic Party credentials had been established well before that. By 2007, 98 percent of his own $1.5 million in political contributions (not including the $50 million or more he’d bundled over the previous 15 years) had gone to Democrats. Organized labor likes Burkle. Among his union awards are the AFL-CIO Murray Green Meany Kirkland Community Service Award and the Los Angeles County Federation of Labor Man of the Year. There’s a good reason for the admiration: Burkle has been good to organized labor. As Union Corruption Update noted in May 2007, Yucaipa was on the verge of completing a buyout of bankrupt Georgia-based long-distance car-hauler Allied Holdings, Inc., with help from the International Brotherhood of Teamsters, which represented over half of the Allied work force. Investors at Hawk Opportunity Fund filed a RICO suit against Yucaipa in Atlanta federal court, demanding $200 million in damages. The suit eventually was dismissed. And Bill Clinton smoothed the way for the takeover by getting Teamsters-affiliated Allied employees to accept a 15 percent pay cut over three years in exchange for Yucaipa taking the company out of bankruptcy. Without the agreement, longstanding management would have shut down the company. Though the agreement triggered a Clinton-Burkle “split,” that was mainly for show in preparation for Hillary’s presidential run. They’re still close. And so are Burkle and the unions.
One thus can understand why the Democratic Party and its constituent groups are discovering Amalgamated Bank as an attractive place to put their money: They see a political benefactor, not just a business. The other half of the equation is why they are pulling money out of Bank of America. Here, too, politics drives things. The sheer size of BoA, formed in 1998 following a takeover by the Charlotte-based NationsBank of BankAmerica Corp., makes it an easy target for the kinds of people who hate banks. As of June 30, 2012, Bank of America was the second-largest bank holding company in the U.S., right behind JPMorgan Chase, controlling $2.16 trillion in total assets.
The hard Left version of anti-bank sentiment was in full evidence on May 9 in downtown Charlotte at Bank of America’s annual shareholders meeting. An estimated 500 to 750 demonstrators, many of them chanting and shouting, converged from three directions onto BoA headquarters on the morning of the meeting, blocking the intersection of 5th and College Streets. Six persons in all were arrested for trespassing or impeding traffic. The rally was organized by a group calling itself “Unity Alliance and 99% Power.” Organized labor, particularly the Service Employees International Union, and various Occupy Wall Street (OWS) offshoots – yes, there is an Occupy Charlotte – have drawn closer since OWS launched its campaign in Lower Manhattan last September. And unions see a major mainstreaming project early next month.
Charlotte isn’t exactly union territory. It doesn’t have a single unionized hotel. And, as if anyone needed reminding, it’s in North Carolina, a Right to Work state – that is, a state in which private-sector workers don’t risk being terminated if they don’t pay dues or (in lieu of joining) “agency fees” to a union with a collective bargaining agreement in force with their employer. According to the U.S. Bureau of Labor Statistics, the total (i.e., private and public combined) North Carolina work force in 2011 had the lowest union membership rate of any state, a mere 2.9 percent. And a report released early last year by the U.S. Chamber of Commerce, “The Impact of State Employment Policies on Job Growth: A 50-State Review,” rated North Carolina as one of 15 states with a “good” business climate, a designation based heavily on labor law (states with “fair” or “poor” ratings had laws more favorable to unions). Charlotte, in other words, might be the last city in which organized labor would want the Democrats to be holding a national convention.
The Democratic National Committee (DNC) has ideas of its own. By January 2011, it had narrowed down its short list for potential convention sites in 2012 to four cities: Charlotte, Cleveland, Minneapolis-St. Paul, and St. Louis. The DNC decided to go with Charlotte, not the least of reasons being that North Carolina, now with a population of more than 9.5 million, has moved somewhat away from the GOP and become a key presidential swing state, a trend owing largely to rapid growth in the state’s (heavily Democratic) Latino population. Barack Obama won there in 2008, but by a razor-thin 49.7 percent plurality. The convention, which expects about 35,000 delegates and visitors, is expected to generate more than $150 million for Charlotte and surrounding areas. That can’t hurt Obama.
It was First Lady Michelle Obama, in fact, who broke the news of the selection of Charlotte as the 2012 convention site via e-mail to supporters on February 1, 2011. That same day, in a speech before a group of New Jersey Democrats, she elaborated:
Charlotte is a city marked by its southern charm, warm hospitality, and ‘up by the bootstraps’ mentality that has propelled the city forward as one of the fastest-growing in the South. Vibrant, diverse and full of opportunity, the Queen City is home to innovative, hardworking folks with big hearts and open minds. And of course, great barbecue.
Barack and I spent a lot of time in North Carolina during the campaign – from the Atlantic Coast to the Research Triangle to the Great Smoky Mountains and everywhere in between. Barack enjoyed Asheville so much when he spent several days preparing for the second presidential debate that our family vacationed there in 2009.
But the convention won’t be just for party bigwigs, said Mrs. Obama:
More than anything else, we want this to be a grassroots convention for the people. We will finance this convention differently than it’s been done in the past, and we will make sure everyone feels closely tied in to what is happening in Charlotte. This will be a different convention, for a different time.”
Other voices of support weighed in at the time. Then-DNC Chairman Tim Kaine, currently in a close race for Virginia senator against former Republican Gov. George Allen, called the selection a “tough choice,” but added Charlotte is “an ideal location.” And Jim Rogers, chairman and CEO of the Charlotte-based Duke Energy Corp., and co-chairman of the city’s convention bid, announced: “Charlotte’s selection clearly elevates our city to a new level in national and world stature.”
Unions were nonplussed. Led by AFL-CIO President Richard Trumka, labor leaders already were growing suspicious of the Democratic Party’s willingness to compromise with the corporate world. Their suspicions have grown further given that the Obama campaign does business with Bank of America. The Democratic Party Left sees Bank of America as a symbol of corporate America and especially corporate Charlotte. On facts, if not sentiment, they have a point. BoA is defraying a certain portion of the convention costs incurred by the City of Charlotte. And the show will culminate with Barack Obama’s acceptance speech at the home of the NFL’s Carolina Panthers – Bank of America Stadium.
Bank of America’s loss largely has been Amalgamated Bank’s gain. The Occupy Wall Street movement got the ball rolling last fall when it announced it had established a credit union account at Amalgamated of about $40,000. This would serve as a catalyst for mainstream party players. The Democratic National Committee reportedly is moving part of its business out of BoA and into Amalgamated. People involved in the switch say the party eventually will move all its money to Amalgamated, a process that should be completed after the election. While they have kept mum as for the reasons, the language of DNC Chairwoman Debbie Wasserman Schultz’s ringing endorsement suggests that a desire to bring the party more in synch with progressive politics has a lot to do with it. A Bank of America spokesman was tight-lipped: “We’ve had a longstanding business relationship with the party and that continues.”
Other organizations have been more explicit. The Democratic Governors Association recently announced that it has opened new accounts with Amalgamated Bank as a show of support, although it has kept its main accounts with Bank of America. And America Votes, a “527” nonprofit group avowedly building a progressive coalition, and whose current members include the AFL-CIO, AFSCME, the National Education Association and the SEIU, also is switching. “Amalgamated is worker-owned, operates according to progressive values [and] provides great service with much lower fees,” says Greg Speed, America Votes executive director. “All of that added up to a pretty easy decision for us.”
It’s also been an easy decision for Amalgamated Bank to accept deposits from such organizations. “We’ve had a big flood of money from progressive groups recently,” said President Ed Grebow. “Part of this issue is these groups have taken for granted that they have to have one of the big banks. You should bank with a bank that shares your values.” But if the newest account holders at Amalgamated value their assets, they might want to rethink their decision. Amalgamated’s investment practices haven’t necessarily reflected an overriding concern with safety and soundness. That’s why 40 percent of its private stock is now in the hands of private equity funds. Two business decisions, more than any other, explain why.
GDC Acquisitions, LLC. Last December two officials of the Queens, N.Y.-based GDC went on trial for fraud relating to the way in which they obtained $21 million in loans from Amalgamated Bank and another financial institution, C3 Capital LLC. The defendants, Courtney Dupree and Thomas Foley, respectively, the chief executive officer and chief operating officer of the holding company, during January 2007-July 2010 allegedly booked fictitious, premature or re-dated sales, and knowingly failed to reduce receivables after being paid. Dupree was found guilty; Foley was found not guilty. GDC’s former chief financial officer and two of its former accountants separately pleaded guilty. According to U.S. Attorney Loretta Lynch, Amalgamated Bank lost $16 million as a result of this scheme.
AOL Time Warner. Amalgamated Bank’s Longview Collective Investment Fund thought it was getting a great deal in buying stock of AOL Time Warner. The decision backfired. The merger of AOL and Time Warner, launched in January 2001, is regarded by knowledgeable business observers as a colossal error – Fortune magazine called it “one of the greatest train wrecks in corporate history.” But several of its executives, including AOL’s Stephen Case, Kenneth Novak and Robert Pittman, allegedly made out like bandits by grossly inflating AOL assets before and after the deal, thus contributing to a stock price drop from $58.51 to $8.60 per share, or more than $200 billion. Longview – that is to say, Amalgamated Bank – lost an estimated $56 million. Amalgamated Bank Vice Chairman (and UNITE boss) Bruce Raynor helped lead a shareholder class-action suit against several AOL Time Warner executives and its auditor, Ernst & Young. In September 2005, AOL Time Warner reached a $2.65 billion settlement with investors. Earlier, in December 2004, the company had reached an agreement with the U.S. Department of Justice and the Securities & Exchange Commission by which it would set aside $150 million for future settlements and pay a combined $360 million in fines to the Justice Department and the SEC. AOL and Time Warner officially would go their separate ways in 2009.
The bottom line is this: Amalgamated Bank lost a combined $72 million from two cases alone. Even assuming no losses from other investments, these investments account for much if not most of the institution’s liquidity shortage. Federal Deposit Insurance Corporation, for one, took notice. In August 2011 the FDIC issued a Consent Order (FDIC-11-260b) calling for the bank to take immediate steps to meet capital, charge-offs, lending standards, auditing, loss allowances and other benchmarks. The section under “Capital” included the following provision: “Within 60 days from the effective date of this ORDER, the Board shall develop a written capital plan (“Capital Plan”), subject to review and non-objection of the Regional Director as described in subparagraph (b), that details the manner in which the Bank will meet and maintain a Leverage Ratio of at least 7% within one year from the effective date of this Order and at least 8% within two years from the effective date of this Order.” The following month, in September, WL Ross and Yucaipa each announced they would chip in $50 million to buy Amalgamated private stock.
Amalgamated Bank, in other words, has had a problem exercising due diligence in assessing the risks and rewards of big-ticket investments, a problem that heavily explains why the bank, more than ever, is on the road to becoming a ward of the Democratic Party. The result likely will be investment decisions in which the interests of heavily union depositors are subordinate to politics. And politicized investments tend to be those that raise the risk of a bailout. The recent bailout, at least, involved private funds only. If another one occurs, taxpayers may be conscripted. Amalgamated was created almost 90 years ago to serve union members. It’s their interests that come first. Democratic Party activists hopefully will keep this in mind well beyond the Charlotte extravaganza of next week.
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