To the Editor:
The author of your March 31 Viewpoint entitled "
As the president and CEO of Connecticut Mutual Holding Company in Litchfield, Conn., and one of its two affiliate banks, Litchfield Bancorp, I find something vexing, too - that corporate raiders are so willing to misrepresent the facts about a form of banking organization that has served communities well in this country for almost 200 years.
About one statement I have no disagreement: There are those who would destroy mutuality for "the potential of outsized gains." These corporate raiders do not care about the cooperative structures of mutuals that have allowed these institutions to operate for decades in the interest of community stakeholders.
Corporate raiders care nothing for the value built up in these institutions by countless generations. What they do care about is wresting away the key to the treasury to enrich themselves.
Fortunately, there are rules and laws to prevent corporate raiders from trying to turn today's vibrant mutual institutions into "Sunbeam Corporations," to the detriment of community stakeholders.
I am also the first vice chairman of America's Community Bankers, which represents most of the 750 mutual depository institutions in the United States, 161 of which are mutual holding companies. Sixty-four of these mutual holding companies have issued stock; mine has not. These holding companies are chartered by the Federal Reserve (as in our case), by the Office of Thrift Supervision, or by state governments and have been an important form of mutual organization since the late 1980s.
A key point that is lost in the March 31 Viewpoint is that mutual institutions in general, and their holding companies in particular, operate in a highly regulated environment. The claim that standards for mutuals are in dire need of change is simply not accurate. In fact, this claim is used merely as a pretense, to express concern about "corporate governance," while hiding the real goals of those who would be enriched by such changes.
Mutual banks are subject to rigorous examination and supervision, and mutual holding companies that do issue stock are subject to the rigors of the Securities Exchange Act of 1934.
Not only are many of the bank subsidiaries of MHCs subject to the audit and internal control requirements of the Federal Deposit Insurance Corporation Improvement Act of 1991, but to the corporate governance and internal control provisions of Sarbanes-Oxley, as well. MHCs are as transparent as any other regulated entity.
Mutual holding companies were developed to provide mutual institutions a mechanism to raise capital and corporate flexibility without giving up their cooperative status.
When a mutual forms an MHC and raises capital through a public offering of minority shares, the same regulated process is followed as in any public offering. The process provides maximum disclosure to the depositors and members of the community who subscribe to the offering, and to the investors who purchase the remaining shares, if any.
The shares purchased in the subscription and community offerings are often acquired by customers and neighbors who are interested in the future of the institution, support community activities, and desire the retention of a stable community bank.
For those depositors, the continued existence of the institution is more important than the "potential for outsized gains."
As a result of the disclosure requirements imposed by the Securities and Exchange Commission and the Office of Thrift Supervision, purchasers of these shares are given ample notice of the limitations and risks of buying minority shares of mutual holding companies. Further, many mutual holding company formations that have included a minority offering have also established a community foundation with a portion of the proceeds.
The holding company board and the board of the resulting savings institution have a fiduciary duty to the holding company and the institution, respectively.
They are required to look at transactions, whether a buyback, the declaration of a dividend, or the decision about a corporate reorganization, with the same diligence that the board of a stock institution must use.
The benefit plans that compensate management and the directors are described in proxy materials approved by the regulators and voted on by the shareholders. Shareholders receive notice of corporate actions that require their approval.
The same rules and responsibilities governing the compensation of board members and management are applicable, whether the institution is in mutual, stock, or mutual holding company form.
Operational or administrative decisions at community banks - whether mutual or stock - are made by management, as delegated by the board, and they are made with a view to the safe and sound operation of the institution.
Mutual depositors do not have a say in running the institution. Numerous times the courts have found that depositors have limited interests.
The allegation of the March 31 Viewpoint that mutual holding companies and mutual institutions are operating without adequate oversight by stakeholders or regulators is not supported by the facts.
The regulator provides continuous oversight through frequent and rigorous examinations. The average equity capital of mutual institutions is 12.92%.
Their level of nonperforming loans is lower than for their stock peers.
Bottom line: Mutual holding companies remain strong, independent, and vital institutions. They have provided almost 200 years of service to their communities, and they will continue to thrive in the 21st century.
