Amalgamated Bank, the nation’s only 100 percent union-owned bank, finds itself at the center of the crumbling marriage between garment workers and hotel employees. Each side is vying for control of the $4.5 billion-asset New York institution, which helps bankroll their organizing campaigns and other operations.
The cash-rich but shrinking Union of Needletrades, Industrial and Textile Employees joined with the larger but financially challenged Hotel Employees and Restaurant Employees International Union in 2004 to create Unite Here, a 400,000-member group wielding dramatically enhanced clout.
But a recent power struggle seems to have doomed the merger, and garment leaders sued in federal court last week to dissolve it. The hospitality union’s leadership, which controls Unite Here’s general executive board, has rebuffed calls for a breakup, in large part to avoid losing access to the garment coffers.
Regulators with the state Banking Department have noted the bickering. “We are getting updates from the bank on this matter,” an agency statement says.
Caught in the middle is Derrick Cephas, chief executive of Amalgamated since 2005 and a former New York state superintendent of banks. Although Amalgamated helps fund Unite Here’s $49 million annual organizing budget—it was the source of nearly all of a $13 million dividend to Unite Here in 2007—the bank’s daily business is supposed to be separate from the union. Cephas intends to keep it that way. “What we do every day, how we manage our business—this conflict has zero effect on us,” he said. “We’ve made a huge effort to keep the bank out of this.”
Cephas has his hands full even without the union strife. His push last year to expand to 19 branches—including three new outlets in hotel-worker stronghold Las Vegas—and his diversification of Amalgamated’s historically conservative portfolio began just as the capital markets peaked.
Amalgamated lost an estimated $10.8 million last year, reports research firm Highline Financial. Total loan value grew 8 percent, to more than $2.4 billion, while the bank’s securities portfolio shrunk 22 percent, to $1.5 billion. Total deposits rose just 10 percent, to $2.6 billion, despite the new bank outlets.
Amalgamated delivered a -0.24 percent return on assets last year, down from 0.5 percent in 2007, according to Highline. An ROA of 1 percent or more is traditionally considered the benchmark for a well-managed bank.
The poor results could stem from $212 million in soured home equity loans bought from Countrywide Financial. Amalgamated filed suit in November, alleging shoddy underwriting standards. Amalgamated has also applied for an undisclosed amount from the federal Troubled Assets Relief Program.
The bank’s board offers additional challenges. As the union split widened in December, garment worker leader and Unite Here general president Bruce Raynor, who is also chairman of Amalgamated’s board, proposed corporate governance changes aimed at “ensuring the stability and good reputation of the bank.” His bylaw revisions included supermajority shareholder votes on “significant” transactions and staggered board elections.
President/hospitality John Wilhelm told union staff in a memo last month he was voted off the board after he discussed the bylaw move with other union leaders and declined to cooperate fully with an outside counsel’s investigation into leaks to the press on the governance changes.
Wilhelm accuses Raynor of leading a “witch hunt.” It gets uglier: Unite Here’s general executive board last week agreed to fund a lawsuit to reverse the bylaw changes.
“It never occurred to me in my wildest dreams that anybody would drag the bank into an internal dispute,” Wilhelm said.
Raynor, for his part, wants to team up with the powerful Service Employees International Union, led by Andy Stern. “Our intentions are to move towards an understanding and partnership with SEIU,” Raynor said. “You can’t hold hostage tens of thousands of workers that don’t want to be part of a union.”
Any split is likely to involve a large payment to the hotel workers, which could come from Amalgamated.
While Stern probably would love to get his hands on a new source of funding, an SEIU spokeswoman said the union is not taking sides.
Filed by Daniel Massey of Crain’s New York Business, a sister publication of Workforce Management. To comment, e-mail email@example.com.
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