Board Okays Town Business with Troubled Bank

Town Treasurer Joan Hendrickson received the Board of Selectmen's blessing to do business with Darien Bank and Trust, a small, local bank with a problematic past—and present.

Monday evening's Board of Selectmen meeting heard Hendrickson recommend that the town invest small, FDIC insured amount, up to $250,000, in Darien Bank and Trust. It's an investment that Hendrickson said might result in an attractive yield, but not without some element of risk.

"By my policy I'm coming to you for permission," said Hendrickson. "If I don't like the rates, the direction the bank is headed—whatever—I don't have to do an investment."

Per the Darien Investment Policy, Hendrickson's outline of short-term investment procedures, the Town Treasurer can, with approval from the Board of Selectmen and Board of Finance, choose to put town dollars in minority and community banks that do not meet Darien's usual criteria of size, safety and financial standing. Darien Bank and Trust, a division of Connecticut Community Banks, is such an institution.

The bank is small and financially weak in comparison to the "50 safest banks in the world," with which Hendrickson says she typically does business. The community bank suffered the economic downtown; moreover, the CCB served as a custodial account for clients of Bernard Madoff, the Wall Street trader accused of operating a $50 billion Ponzi scheme. Related litigation costs continue to drain the national bank's capital.

The real draw of investing with the Darien Bank and Trust is a potentially higher yield than offered by FDIC insured banks.

"I used to only look at the dollars now I look at the nickels," said Hendrickson.

In addition, interest rates are particularly low and a strong investor base has allowed the bank to recover capital internally.

"That's a huge statement that speaks to the level of commitment of shareholders to the bank," said Hendrickson.

The proposal met the board with some concern.

"I have a certain level of discomfort, only because of their legal issues. I'm not really sure I understand why we really need to go down this road," said Acting First Selectman David Bayne.

Hendrickson admitted the lengthy litigation could drain the bank of capital. She said the real risk was timing.

"When do we get our money back? Well, worst case scenario the FDIC comes in, and we stand in line saying 'Please give us our money.'"

Still, Hendrickson said that risk was negligible, as the money she looks to invest—a small amount of surplus funds—is not tied to salaries or a particular project.

"We don't need to get our hands on that money quickly," Hendrickson said.

Selectman Jerry Nieslen noted the bank's local invovlement as another positive. Darien Bank and Trust has participated in the community since 2002.

"I think it's nice if we can invest locally with the smaller banks. I think that's important," he said.

The Board of Selectman approved Hendrickson's proposition to invest in Darien Bank and Trust, per the Town of Darien Investment Policy. Nielsen, Selectman Callie Sullivan and Selectman Jayme Stevenson voted in favor; Bayne, admittedly still "a bit uncomfortable," abstained.

First Selectman Dave Campbell is out of town this week.