Visit the National Legal and Policy Center.
Unions understandably dislike doing business with nonunion employers. So it remains more than of passing interest to their leaders that Charlotte, a nonunion city, hosted the Democratic National Convention. They and allied groups, which now include party leadership, are responding by shifting some or all deposits from the Charlotte-based Bank of America to a New York-based, union-owned institution, Amalgamated Bank. Taken far enough, this process could put depositors and taxpayers in harm’s way.
Everyone has heard of Bank of America, whether or not they bank there. But Amalgamated Bank needs a little explanation. It isn’t exactly a union. Yet it looms as potentially the most important labor-affiliated organization in the country this side of the AFL-CIO. And it’s got excellent connections in case it gets into trouble.
The full service bank was founded way back in 1923 by the Amalgamated Clothing Workers of America, which eventually morphed into the Union of Needletrades, Industrial and Textile Employees, or simply, UNITE. In 2004, UNITE merged with the Hotel Employees and Restaurant Employees (HERE) to become a new powerhouse, UNITE HERE. The marriage was short-lived. Bruce Raynor and John Wilhelm, the respective bosses of UNITE and HERE, had a bitter falling out. Raynor loyalists within UNITE broke ranks in 2009 to form a new entity, Workers United, re-affiliating with the Service Employees International Union. UNITE HERE and SEIU, as one might imagine, were practically at war. 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 has branches in New Jersey, California and elsewhere. Its core depositors are union members. With about $4.5 billion in assets, it serves hundreds of labor organizations. Until recently, it was wholly union-owned. That status changed last September when a pair of private equity firms, WL Ross & Co. and Yucaipa Companies LLC, each bought a 20 percent stake in the institution’s privately-issued common stock (subject to federal approval) for a combined $100 million. In an earlier time, these transactions would have been way out of character. But Amalgamated had little choice at that point. Federal Deposit Insurance Corporation and the New York State Banking Department each recently had cited it as severely undercapitalized.
WL Ross and especially Yucaipa were logical choices for equity participation. The New York-based WL 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 Republican 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, whose net worth Forbes listed last year at $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 well-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.
Burkle, in turn, has been good to organized labor. Yucaipa back in 2007 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. But a problem had emerged: Investors at Hawk Opportunity Fund had filed a RICO suit against Yucaipa in Atlanta federal court, demanding $200 million in damages. The takeover was in jeopardy. Fortunately, Burkle had a secret weapon in Bill Clinton. The former president was instrumental in smoothing the way for the Yucaipa takeover by getting Teamsters-affiliated Allied employees to accept a 15 percent pay cut over three years in exchange for their company avoiding bankruptcy. Without the agreement, the old management would have shut down the company and thousands of union employees would have been looking for work. The Hawk Opportunity Fund RICO suit eventually was dismissed. Though the agreement triggered a Ron Burkle-Bill Clinton “split,” that was mainly for show in preparation for Hillary’s presidential run. The two are still close. And so are Burkle and the unions.
The fact that the Democratic Party and its constituent groups are discovering Amalgamated Bank as an attractive place to put their money, then, is no mystery: They see a political benefactor, not just a business. But there is also the other half of the equation to consider: Why are they now pulling money out of Bank of America? The answer, again, is politics.
Bank of America, formed in 1998 following a takeover by the Charlotte-based NationsBank of BankAmerica Corp., makes for an easy target – at least among people who love to hate banks. As of June 30, 2012, it was the second-largest bank holding company in the U.S., right behind JPMorgan Chase, controlling $2.16 trillion in total assets. Street furies of the hard Left were out in full force on May 9 in downtown Charlotte at the Bank of America annual shareholders meeting. An estimated 500 to 750 demonstrators, many of them chanting and shouting, converged from three directions onto company headquarters that morning, blocking the intersection of 5th and College Streets. Six persons wound up being 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 to these street furies ever since OWS launched its campaign in Lower Manhattan last September. And the unions see a major mainstreaming project that can bring in some money.
Charlotte, as mentioned at the beginning of this article, 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 in 2011 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 this country where organized labor would want the Democratic Party to hold a national convention.
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.
Freedom Center pamphlets now available on Kindle: Click here.