Occupy’s Union Bank Embraces Billionaires in Profit HuntMax Abelson
The alarm blaring in the New York headquarters of Amalgamated Bank, where the Democratic National Committee and Occupy Wall Street are clients, didn’t bother the two pinstriped executives sitting still with legs crossed.
“You smell the smoke,” Chief Executive Officer Ed Grebow told Chief Financial Officer Bill Houlihan last month, “then we’ll do something.”
Their firm has seen worse. The nation’s largest union-owned bank had almost been ruined by soured deals from Long Island City to Las Vegas when it agreed in 2011 to sell a 40 percent stake to billionaires Wilbur L. Ross and Ron Burkle.
After a rescue by investors each rich enough to foot the Occupational Safety & Health Administration’s $535 million budget, the lender founded 90 years ago by garment workers is putting profit first. The $100 million from WL Ross & Co. and Burkle’s Los Angeles-based Yucaipa Cos. helped the bank earn $3.9 million in 2012, trim bad loans and end a two-year-old Federal Deposit Insurance Corp. consent order in June.
“First and foremost we’re a bank,” said Stephen Toy, New York-based WL Ross’s representative on the board. “Secondly, we’re a bank that serves a very specific market.”
Under new executives from JPMorgan Chase & Co., Goldman Sachs Group Inc. and HSBC Holdings Plc, Amalgamated is expanding businesses including leveraged lending for private-equity buyouts. Its website, topped by an “America’s Labor Bank” slogan, advertises a May deal with TRAKAmerica, a Naples, Florida-based company specializing in debt-recovery services.
“We are clearly here to make money,” said Grebow, 64, who joined in 2011 from private-equity firm J.C. Flowers & Co. and said he’s comfortable enough with the bank’s recovery to step down early next year. “I was brought in to do the turnaround.”
The company he’ll leave behind is controlled by Workers United, a garment-industry affiliate of the 2.1 million-member Service Employees International Union, one of the largest U.S. labor groups. Still, Amalgamated may look more like a bank with union ties than a union offshoot that does banking.
“If the test for us is ideological purity, it’ll be difficult for us to achieve,” said Amalgamated’s Washington director, Keith Mestrich, a former CFO for the SEIU. “We’re not going to be perfect.”
The bank, with $3.6 billion of assets, has about two dozen retail branches, almost all in New York, and divisions that finance real estate, lend to private-equity firms and manage and administer pension plans for unions, according to its website.
Real estate has hurt the bank. It bought about $800 million of loans from subprime lender Countrywide Financial Corp. before the 2008 crisis, according to Amalgamated Treasurer Ken Schmidt. Countrywide collapsed under the weight of losses and was sold to Bank of America Corp.
“Terrible loans, really bad loans,” Grebow said. “The bank expanded into markets it didn’t know, and Las Vegas is the best example.”
Amalgamated was an investor in a Plaza Hotel-themed multibillion-dollar luxury gambling complex there announced in 2007. Six years later, the site remains empty desert. The bank sold off its loan in August, according to Samantha Berg, a company spokeswoman.
It had even worse timing as lender to the 556-room InterContinental Chicago O’Hare hotel, which opened days before Lehman Brothers Holdings Inc.’s 2008 bankruptcy. Also that year Amalgamated agreed to loan as much as $21 million to a company in New York’s Long Island City whose owner was sentenced in May to seven years in prison for defrauding the bank.
The government cracked down on Amalgamated’s management. Under the FDIC’s 2011 consent order, the bank was ordered to cut bad loans from its books, limit its exposure to them, renovate risk systems and boost capital.
“Regulators were threatening significant sanctions and possibly closing it,” said Grebow, the CEO. “We desperately needed capital.”
Because the bank’s union owner didn’t have millions of dollars to pump in, getting the capital wasn’t easy.
“Frankly, there weren’t a lot of other people standing in line around the bank willing to put that kind of money into it,” said Noel Beasley, Amalgamated’s chairman and president of the 80,000-member Workers United. “I didn’t have many friends who had $50 million.”
They found billionaires who have been praised by unions, with the United Steelworkers commending Ross and the United Food & Commercial Workers giving Burkle’s supermarkets good marks. They also found businessmen who might make some workers uneasy.
Ross, 75, was chairman of International Coal Group Inc. in 2006 when an explosion killed 12 men at its mine in Sago, West Virginia, after hundreds of safety violations. The company was sold for $3.4 billion in 2011, a year before Ross publicly supported Republican presidential candidate Mitt Romney, irking Amalgamated clients, according to Grebow.
“One of the unfortunate things in today’s society is capitalism has become to many people a dirty word,” Ross said. “The only way it will ultimately fulfill the original dream and the original mission is to be a profitable and healthy bank.”
Burkle, 60, is also an investor in Soho House Group, which runs private clubs, and Morgans Hotel Group Co. The longtime Democrat told Bloomberg Businessweek in 2010 that his investing is guided by something beyond politics.
“Since I was 13, I’ve been buying things because they are ridiculously cheap,” he said. “We always try to buy companies that are doing OK but that have some issues.”
The billionaires’ firms invested about $50 million each. Burkle wouldn’t comment for this story, said Frank Quintero, a Yucaipa spokesman. The firm is represented on the board by W. Gerald McConnell.
They were the bank’s best option, according to Mestrich.
“These are billionaires who have common cause with a bank like Amalgamated -- at least from time to time,” the Washington director said. “Nobody in this world is pure.”
The bank’s majority owner splitting in 2005 from the AFL-CIO, the largest U.S. labor federation, wasn’t its messiest divorce. A 2004 merger between the garment workers who controlled Amalgamated and a hotel union disintegrated amid allegations of misappropriations and a fight over the lender. It ended in 2010 with Amalgamated returning to the garment group, now known as Workers United, and the firm’s Art Deco Manhattan headquarters going to the hotel workers.
The bank’s labor tie is “also our weakness,” said Grebow, who cited the union movement’s decline. “It was clear to me we couldn’t just rely on labor. We needed to branch out.”
Some of that new territory fits snugly into what the bank’s website calls its progressive tradition. Amalgamated became the DNC’s only lender last year, handled banking for President Barack Obama’s second inauguration, announced a loan program for skilled immigrants in August and started municipal lending when union connections brought it to Scranton, Pennsylvania. The loan to the city, which faced a budget gap, helped it make payroll.
Occupy Wall Street, the global movement against inequality, became a client in 2011.
“OWS would routinely collect thousands of dollars in crinkled small-bill donations,” former Occupy finance committee member Haywood Carey said. “We have nothing but great things to say about the staff, management and board.”
The bank also lends to private-equity clients, which unions including the SEIU have criticized for cutting benefits and jobs and for benefiting from tax loopholes.
Amalgamated’s deal with TRAKAmerica gave a multimillion-dollar credit line to a firm that said it has “been able to recover millions of dollars previously believed to be unrecoverable.” Its clients are direct creditors and debt buyers, according to TRAKAmerica’s website, which lists installment loans and credit cards as areas of expertise.
H.I.G. Capital LLC, a Miami-based private-equity firm whose holdings have included a jailhouse phone service and Hooters, the restaurant chain with waitresses in hot pants, announced in 2010 that it acquired TRAKAmerica along with another investor.
Amalgamated CFO Houlihan, who previously worked for Goldman Sachs and subprime credit-card lender Metris Cos., said TRAKAmerica is “a legitimate business.” Debt collectors work with borrowers “to try to get them to do the right thing.”
The bank also is relying on foreclosures as a tool to clean up soured home loans on its own books.
“We are very careful to make sure we treat people fairly,” Grebow said. “On the other hand, our job is to protect the assets of the bank, and that’s what we do.”
Amalgamated posted a $3 million loss in the first quarter, then reported a $1.5 million gain in the next period as provisions for loan losses fell, company filings show. It was profitable in the third quarter, according to Grebow.
“We feel like the dark days are pretty far behind,” said Toy, the board member. “I don’t know that I would call it a more Wall Street institution -- I would say it’s a much more sophisticated institution.”
More consistent profits, if Amalgamated can find them, will create questions for the firm, said Andy Stern, who criticized banks including Goldman Sachs as SEIU president until 2010.
“Now they’re going to face the challenge,” he said. “Where do we draw lines in terms of our profitability versus our responsibility?”