Insider Priority Tactics Funded by Shareholders

To the Editor:

Your article on Onbancorp and activist shareholders ("Upstate N.Y. Bank Forced to Defend Its Rules from Its Own Shareholders," June 24, page 1) missed two points:

*The banks never dispute that GIP (give insiders priority) tactics are only to benefit insiders, as opposed to the bank, its shareholders, or its depositors. The only purpose for the Onbancorp defenses is to perpetuate management and its annuity.

*The funds used for this tactic are not those of management, but of the bank itself. Both sides of the litigation are being funded by the investors in the bank - the bank owners, rather than its management.

This is not peculiar to Onbancorp. The president of First Keystone Financial in Media, Pa., for example, owns less than 2% of the bank and far less than outside investors including myself and Genesis Financial Partners. This is a bank that could be sold for 50% higher than market price, and seven interested buyers were identified to the bank by me in a recent letter to the board. Yet the GIP defense is being funded out of bank assets, not management's.

The recent poison pill adopted by Norwalk Savings in Connecticut and the machinations at Suburban Federal in Cincinnati are similarly funded out of bank assets.

After all is said and done, economic good sense alone makes the consolidation of certain banks, including First Keystone, Suburban, and Norwalk, a no-brainer. Unfortunately, the decision whether to be acquired is controlled, under present circumstances, by the very people who control the banks' assets, which they use freely for funding the preservation of their annuity. Does this violate their fiduciary duty? Probably.

Jerome H. Davis

Greenwich, Conn.

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