On Sept. 5, 2003, New Haven Mayor John DeStefano Jr. stood outside the steps of New Haven Savings Bank’s headquarters on the corner of Church and Elm streets and denounced its plans to merge with two other banks and become a publicly owned company. The bank, DeStefano explained, was being taken out of the hands of its owners — the mostly local residents who deposited money into NHSB — and converted into a new entity that would no longer serve the citizens of New Haven.

“I’m here to report on a bank theft,” DeStefano said at the time. “My bank is being stolen, and I know who is doing it.”

Fewer than five months later, on Jan. 26, DeStefano delivered a public statement in nearly the exact same location — but this time, he was standing next to NHSB President Peyton Patterson, and he was praising commitments the bank had made to the Elm City.

NHSB is still awaiting final approval from regulators concerning its plan to buy out Manchester and Tolland banks and convert to a joint-stock corporation. But the bank passed another regulatory milestone yesterday, as the Federal Deposit Insurance Corporation approved its plan to go public, and opposition to its proposed changes have quieted since it signed an agreement with the city to create an independent $25 million charitable foundation and improve its commitment to low- and moderate-income borrowers.

Yet despite the bank’s apparent success in securing approval of its merger and conversion, lingering questions remain over the future of New Haven Savings Bank as well as over the merits of the settlement reached last month.

Searching for X

When New Haven Savings Bank announced its planned changes last July, it already knew it was going to face the opposition of some of its depositors. But sources involved in recent negotiations over the conversion process said the bank underestimated how much anger its plans would create.

“Taking the bank private and offering it up for public purchase is very much in step with 20th century business history of New Haven and with the last 15 years of banking history nationally,” Yale professor Douglas Rae said. “So there’s nothing shocking about the business side of it.”

But, Rae said, NHSB had a unique identity as a prominent member of the New Haven community, and DeStefano and many city residents expressed concern that a converted NHSB would soon be bought out by a larger competitor. In addition, opponents suggested that the bank’s conversion made little financial sense and was only intended to enrich bank executives and directors.

Julio Gonzalez, a chief aide to DeStefano, said that while the mayor and his supporters did not believe it would be able to forestall the bank’s conversion, City Hall still aimed to earn concessions favorable to the city — a goal aides casually referred to as the unknown variable X.

“Our goal was to win X,” Gonzalez said. “We called it X because we did not know what it would be.”

City Hall hired a prominent Washington, D.C. law firm in its efforts to convince regulators not to approve NHSB’s plans. Along with other elected officials, community leaders and local labor unions, the mayor publicly protested the bank’s moves and accused it of discriminatory lending practices.

In response, the bank’s counsel, William Bouton, said in a letter written to the FDIC in November that the mayor and his allies were challenging the bank for purely political reasons.

“Other groups from the city supporting the Mayor’s position are generally politically aligned with him and are regularly engaged in anti-business activities,” Bouton wrote. “Whether it is a strike at Yale University, attempted unionization of non-union businesses or other anti-business campaigns, they will continue to pursue their political agenda.”

But State Banking Commissioner John Burke — the state official responsible for evaluating the bank’s conversion — said NHSB’s approach was influenced by the anger it faced in the New Haven community.

“I think they really got a message that the approach to this and the solution to this had to change from [what it was] at day one,” Burke said.

A done deal?

By Christmas, the bank and City Hall began discussing the possibility of a settlement. In January, representatives from the bank and the city conducted confidential negotiations while facing two deadlines — Burke’s desire to quickly hand down a decision and the possibility that NHSB would need to pay late fees to Manchester and Tolland banks if the merger was not completed by March.

Within weeks, the X that DeStefano had been searching for began materializing as a new $25 million foundation that could, within three years, create a new bank devoted to lending to low-income borrowers. On Jan. 23, Patterson and DeStefano signed a final agreement ending the city’s formal opposition to the bank’s plans and leading the way for Burke’s approval of the conversion three days later.

“I think we definitely started from a distance,” NHSB Vice President Paul McCraven said. “It all went fairly quickly, but there definitely were a lot of disagreements that needed to be hashed out.”

Yet despite the agreement, some of the original critics of the conversion said they remained unhappy with the bank’s plan. The New Haven Central Labor Council said last week that it would continue to recommend that local union members withdraw their savings from the bank, and two civil action lawsuits against NHSB are still being pursued.

In addition, some of the mayor’s allies have faulted DeStefano for signing a clause stating that neither he nor the full Board of Aldermen would criticize the bank’s low- and moderate-income lending practices for five years. DeStefano, however, said last week that he was in no way “gagged” by the agreement, and his aides in the negotiations said the city was willing to accept the clause in return for the unprecedented financial commitments made by the bank.

The agreement between the city and the bank will only apply if the conversion receives final approval from state and federal regulators, a process the bank expects to be completed by late March.