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The Democratic National Committee (DNC) had other ideas. By January 2011, it had narrowed down its short list of 2012 convention sites to 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 become a key presidential swing state and would benefit from the extra business. Barack Obama barely won there in 2008 with a 49.7 percent plurality. It was First Lady Michelle Obama, in fact, who broke the news of the selection of Charlotte via e-mail to supporters on February 1, 2011. That day, in a speech before a group of New Jersey Democrats, she called Charlotte “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.”
Other voices of support weighed in. Then-DNC Chairman and former Virginia Governor Tim Kaine, now in a close race for Virginia senator against former Republican Governor George Allen, called the selection a “tough choice,” but noted that Charlotte was “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 enemy. Their suspicions grew after they learned that the Obama campaign had been doing business with Bank of America, a symbol of corporate America and corporate Charlotte. On facts, if not sentiment, they have a point. Under the arrangement, BoA agreed to defray a portion of the convention costs incurred by the City of Charlotte. And the show would culminate with Barack Obama’s acceptance speech at Bank of America Stadium, a speech which, as fate would have it, was moved indoors due to weather considerations.
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 in the amount of about $40,000. This would serve as a catalyst for mainstream party players. The Wall Street Journal in its August 11-12, 2012 weekend edition reported that the Democratic National Committee, apparently chastened by its union base, shortly would be moving part of its business out of Bank of America and into Amalgamated. People involved in the switch, in fact, told the Journal that the party plans to move all of its money to Amalgamated, a process to be completed after the election. They would not elaborate on the reasons. A Bank of America spokesman also 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 it opened new accounts with Amalgamated Bank as a show of solidarity with the unions, although it has kept its main accounts (for now) 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 Amalgamated 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.”
Before this stream turns into a river, however, present and future account holders at Amalgamated might want to rethink things. For the bank’s investment practices haven’t necessarily reflected an overriding concern with safety and soundness. That’s pretty much why 40 percent of its private stock is now in the hands of two private equity funds. A pair of highly misguided recent business relationships explains why.
GDC Acquisitions, LLC. Last December two officials of the Queens, N.Y.-based GDC went on trial for fraud relating to their obtaining $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 GDC, 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 AOL Time Warner stock. The decision backfired. The merger of AOL and Time Warner, launched in January 2001, is generally 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 department and the SEC. AOL and Time Warner, mercifully, would go their separate ways in 2009.
Amalgamated Bank, in other words, lost a combined $72 million from these two cases. Even assuming no other losses, these investments explain much, if not most, of the institution’s liquidity shortage. Federal Deposit Insurance Corporation certainly had taken 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 chipped in $50 million to buy Amalgamated private stock.
Amalgamated Bank, in other words, has had a real problem exercising due diligence in assessing the risks and rewards of big-ticket investments. That problem explains why the bank increasingly may become a ward of the Democratic Party instead remaining firmly in its traditional role as a one-stop bank for union rank and file. Subordinating business decisions to politics tends to lead to misguided investments, something that ought to be painfully evident in the context of the government bailouts of 2008 and beyond. The recent rescue of Amalgamated Bank, at least, involved private funds only. If there is a next time, taxpayers might be pressed into duty.
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