Old rivals forged bank merger that works

Boston has seen some legendary rivalries: The Red Sox and Yankees. The Bruins and Les Canadiens. Latin School and English High. Harvard and Yale.
Cross-town partners; Ed Merritt and Dick Gavegnano. 	Photo by Ed ForryCross-town partners; Ed Merritt and Dick Gavegnano. Photo by Ed Forry

Then there’s South Boston and East Boston, those two neighborhoods that look across the harbor at each other, just a mile or two apart in distance but seemingly worlds away by tradition. Southie- Eastie football teams, the Chippewas and the Tornadoes, were for generations arch-rivals and fierce competitors.

Three years ago, when Mt. Washington Cooperative Bank began to search for a business partner, CEO Ed Merritt looked across the divide and found Dick Gavegnano. He was chairman of the capital-rich East Boston Savings Bank, and was looking to expand the reach of his newly-public Meridian Interstate Bancorp Inc., a holding company which owns the East Boston bank.

“We felt we had to take a step back. We have not been immune from the current economic climate,” Merritt said in a July 2009 interview. “East Boston shares our vision of being a great community bank. There are a lot of synergies to help us fulfill our mission as Boston’s community bank. Over the long term we’ll be in the position of being a bigger and stronger community bank, and we’re very excited about that.”

That year, the two banks were joined, with Mt. Washington maintaining its own identity and operating as a Meridian subsidiary. The banks completed their convergence last October.

Last week, the two bankers sat together in Merritt’s third floor office overlooking West Broadway, and in an exclusive interview with the Reporter they reviewed the combination of the two financial entities into one.

“The merger has gone very well, as planned. We were successful in combining the both cultures,” Gavegnano said. “As I stated originally when I first met Ed and got familiar with Mt. Washington, both banks have a similar history because of the neighborhoods we serve — East Boston and South Boston. They are both real strong community banks, real great old neighborhoods with a long tradition of doing business with both banks. Immediately we felt good that we had a lot going for us, not against us. We had the same cultures.”

Gavegnano, an East Boston native, said he was cognizant of the traditional rivalry between the two towns. “My uncle Vinny played for the Tornadoes- and fortunately he wore a helmet,” he laughed.

About the Eastie/Southie rivalry, he said, “I recognized that, and was very sensitive to that and that’s why I informed the commissioner of banks about rivalry, and I told them that it wasn’t a good idea for me to come into South Boston and change the names to East Boston Savings Bank.

“I didn’t think that would be a wise move. Mt. Washington has been around 120 years; the name is very well respected, and they love their bank. The Commonwealth realized it was a good idea because we wanted to increase the value of this franchise,” said Gavegnano. “I gave Ed my word that we’d have a couple of new branches as soon as we could get them done; if you notice, we opened up in West Roxbury in January and Ed’s going to start construction in April in the South End.”

Self-described as an entrepreneur rather than a banker, Gavegnano had a long relationship with the East Boston bank, first as a corporator in 1974, and later as a trustee and lead independent director. He became board chairman of in 2003 and in 2007 added the CEO title.

In that role, he took the bank public, selling 45 percent of the bank and forming the Meridien holding company.

“We raised over $100 million, to double the cap to over $200 million,” he said. “It was a timely move and gave us a high degree of insulation from the environment.”

The capital infusion enabled him forge the alliance with Mt. Washington, he said. “The banks have continued to grow, and together, both banks, we have 20 branches and $1.8 billion in assets.”

What concerns does the bank have for the future, given the current economic recession and increasing regulatory climate?

“Our issues are to serve the community; we have no real issues with doing what we do best,” Gavenganon said. “What are we afraid of going forward in banking? I would have to say the wild card that comes out of Washington (D.C.) with this new legislation. Because of the environment, what they do is come up with a plan and they paint everybody (banks) with the same brush. They come up with these new regulations that were created under a panic situation with these large banks and what’s happened in real estate, with Fannie Mae and those agencies and it just filters all the way down to people like us who played by the rules did everything right, and didn’t set people up for failure.

“We stuck to our principals and did things the right way.  But we’re feeling the after effects. We can deal with almost any economic situation, created by the current conditions but you just cannot deal with any wild card that comes out from legislation or from the regulators. It’s overpowering, it costs us all a lot of money and puts us all under a lot of stress; it hurts the bank with earnings, its just very difficult.

“Sometimes it’s just a change in interpretation. You could have been doing something the same way for 20 years, they (the regulators) say we haven’t performed to their interpretations and when you ask to be specific they simply say it’s up to you to interpret the regulations.”

“With the new consumer watchdog agency, ultimately it’s going to affect the consumer,” Merritt said.
“Absolutely. At the end of the line it’s the consumer who’s going to pay,” said Gavegnano.

Both men say they find their role as a small neighborhood bank helpful, and point to the development of a range of bank service for small businesses.

“We have 100 percent free checking. We have the products that small business like, and we don’t ‘fee’ them to death,” says Gavegnano. “The biggest thing is if you pick up the phone you get a person. I get calls at night or over the weekend, they say, ‘Dick look at this property over the weekend we really want to make an offer. Can we start this ball rolling Monday morning?’ Bang- 10 o’clock Monday morning the loan guy’s down there talking to them how to put this deal together. You get an answer in three weeks. They can’t do that. They tell you they can but they don’t.

“We like to be right in the face of the large banks, because that’s where the money is- and we do very well against them competing. With him we are an alternative, more consumer friendly, consumer oriented, Gavegnano said.”

Merritt said he was pleased the way the merger has worked out.

“Dick and I first met in April 2008 and started talking about the framework of this merger,” he said. “Everything that he said would happen, everything that we discussed has happened. I never have had to go back to him and say that’s inconsistent with what we talked about.”