Taking advantage of the government's increased interest in small business lending, a Long Island bank has raised antitrust objections to a planned purchase of its stock by a competitor.

Suffolk Bancorp of Riverhead, N.Y., argued in a filing with the Federal Reserve Bank of New York that the plan of Mattituck-based North Fork Bancorp.'s plan to buy 19.9% of Suffolk would substantially harm small business lending on eastern Long Island. Both headquarters towns are Suffolk County.

"The 19.9% is just the beginning of what we think will lead to them going for the entire equity position of the bank," Suffolk president Edward J. Merz said.

"In most areas where we share branching, we account for a lion's share of the market. If they effect a takeover of our operation, it would lead to a monopolistic position" for small business lending.

A Justice Department draft of new merger guidelines calls for the government to look especially closely at the impact of acquisitions on small business lending.

Suffolk Bancorp said small business lending is the only area the stock purchase would affect. Loan officers would not pursue small business lending opportunities as aggressively, fearing they would be taking business from their future bosses at North Fork, said Suffolk's attorney, Stuart C. Stock of Covington & Burling.

Also, Mr. Stock noted that North Fork stated in its application to make the purchase that it is "actively exploring" whether to acquire all of Suffolk. "Suffolk is afraid that having one, sizable bank would result in a significant loss of competition," he said.

North Fork, however, has pledged that it will not interfere with the bank's operation, seek a seat on its board, or sell shares in a way that could hurt the bank, said William Sweet, a partner at Skadden, Arps, Slate, Meagher & Flom.

"Those commitments effectively preclude us or any other investor from exercising control over the company," Mr. Sweet said.

Both the Federal Reserve Board and the Justice Department will review Suffolk's claim. After the central bank renders a decision, Justice - if it disagrees - can file suit.

Suffolk bolstered its application with dozens of letters from small businesses. The letters, which were submitted in two volumes to the New York Fed and the Justice Department, stress the local nature of Suffolk's economy.

Birchwood Tap Room owner Michael P. Jacobchek wrote that the local economy would suffer without the competition between North Fork and Suffolk.

"There would be a shortage of banks to choose from, and those banks remaining would have less incentive to provide the kind of personal service we need and deserve," he wrote.

North Fork, however, said there is "vigorous" competition for small business loans in Suffolk County and the surrounding communities. "We really don't see much of an issue on the merits," Mr. Sweet said.

Banking antitrust experts are split on how effective Suffolk's protest will be.

"It seems to me to be very speculative that at 19.9% it is going to have anticompetitive effects," said Gil Schwartz, a partner at Schwartz & Ballen. "It certainly is an interesting approach to defending what appears to be an unfriendly stakeout."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.