A planned acquisition of a stock bank by a mutual savings bank in Connecticut is refocusing attention on a gap in that state's banking laws, as lawmakers and trade groups hustle to plug it.
Jewett City Savings Bank, a mutual institution, has announced its intention to buy cross-town rival Jewett City Trust Co., with $39.1 million in assets. The acquisition, which is still subject to the approval of regulators and shareholders of the trust company, is expected to be completed in the third quarter.
But the transaction is complicated by an omission in state law that does not allow a mutual to directly acquire a stock institution.
Instead, the savings bank must form a stock subsidiary, merge the trust company into the subsidiary, and then collapse the subsidiary back into the mutual. That makes the entire process more cumbersome, time-consuming, and expensive than other acquisition, said Gerald M. Noonan, president and chief executive of the Connecticut Bankers Association.
The problem became apparent last year, when Manchester Savings Bank considered acquiring Manchester State Bank and attorneys realized the difficulties.
Banking lobbyists and lawmakers thought they had addressed such problems with a recodification of the state's banking statutes in 1994, followed by had two pieces of corrective legislation since then, Mr. Noonan said. The Connecticut trade group and lawmakers are now scrambling to fix this latest problem, probably with another amendment.
"We knew we would have to make changes and we knew there would be some oversights and mistakes," Mr. Noonan said. "It's impossible to have legislation that broad and not have that be the case."
"A lot of mutuals in Connecticut are unaware of the fact that they can in fact acquire stock institutions with a little extra effort," said John Carusone, president of Hartford's Bank Analysis Center. "I expect that it will attract attention of a variety of mutual institutions."