27. Was Washington listening?

Both Hibernia and Capital One had active government relations programs aimed at improving laws and regulations related to financial services.  Each was a member of top industry trade groups in Washington, D.C., including the Financial Services Roundtable and the American Bankers’ Association.  Hibernia was also a member of the Louisiana Bankers Association[1], and other state trade groups.  Pat Bell, who once worked for legendary Louisiana congressman Billy Tauzin, managed Hibernia’s government activities.

Soon after Katrina, the two companies looked for ways to influence the design of government recovery loan and grant programs, believing banks could play an important role.  There were many calls for government help to mitigate the devastation.  New or modified programs would be crafted largely in Washington or Baton Rouge.

As early as Sept. 1 (three days after Katrina), Herb Boydstun told Bell in an email:   “I have spoken with (U.S. Rep.) Bobby Jindal.  He had Travis Johnson call me.  I asked Travis to provide me a list of governmental programs that had been used before/might be provided here, with the needed qualifications for recipients … when they might receive it, and how much.  Travis told me that, as a start, $10 billion was being asked for and would be taken up before Congress tomorrow …”

~ ~ ~ ~ ~

Excelled in government relations

PAT BELL: In charge of Hibernia's government relations / Photo: Russ Hoadley

PAT BELL: In charge of Hibernia’s government relations / Photo: Russ Hoadley

Patrick Bell, 44, was with Hibernia for eight years. He had worked for Argent Bank in Thibodaux five years, and before that was an aide to longtime congressman Billy Tauzin (D) for 13 years.

Bell had wide knowledge of Louisiana politics.  He was known to city, parish and state elected officials as well as the state’s nine-person legislative delegation in Washington.  He sat on government relations committees of the Louisiana Bankers Association, the Financial Services Roundtable and the American Bankers Association. 

A single parent, he had a daughter, 11.  He evacuated to Thibodaux, where much of his family, including his 88-year-old father, lived.

After Katrina, Bell worked non-stop over the months to put banking recovery issues in front of officials in New Orleans, Baton Rouge and Washington. 

~ ~ ~ ~ ~

Bankers wanted a voice

If the federal government wanted to get emergency aid programs up and running quickly, local banks thought they were a logical place to start. If there were to be recovery loans, they already had all the lending mechanisms in place.  Alternatively, if there were to be emergency grants, the banking “payments system” could be utilized – methods such as debit or stored-value cards, direct deposit or other value-transfer capabilities.  Electronic methods seemed far preferable to mailing checks from Washington to people living at temporary addresses, scattered across the country.

Bell began working his political contacts and, over a four month period, made five trips to Washington, coordinating with Capital One’s head of government relations, Larry Stein, his assistant, Scott Silverthorne, and Ken Goldberg.

Other area banks played an important role, including Joe Canizaro’s First Bank, Guy Williams Gulf Coast Bank and Hancock Bank in Mississippi.

Gulf Opportunity loans

What eventually became the “GO Loan” program had its genesis in ideas that these bankers proposed.[2]  Capital One’s Goldberg remembered that Reidy asked him to help define “how we might ensure that the right amount of aid was delivered in the right ways to the right places.”

Consortium of banks?

With other banks, Hibernia and Capital One put forward a concept for a consortium of local institutions to issue loans with advantageous terms for small business owners that they hoped the federal government would endorse.

The Small Business Administration earlier had been hindered by a backlog of both individual and small business loans, and bankers wondered if something could be put together that would either streamline the SBA or go around it.

Area banks thought they had many things going for them.  They knew the turf.  They already had loan systems and processes in place.  They knew how to respond quickly to market needs.  They could get up and running fast.

Despite these obvious assets, the bankers were met with polite but lukewarm reception from the government.  “Our concept quickly evolved into, ‘Well, rather than a consortium of banks, let’s find the most appealing program, the least objectionable way of structuring this program so that we can get it done faster,’ ” Goldberg recalled.

CONG. RICHARD BAKER: Had his own plan / Photo: Unknown

CONG. RICHARD BAKER: Had his own plan / Photo: Unknown

Meeting with Baker

With the help of Bell and others, a meeting was arranged on Capitol Hill with Rep. Richard Baker, a Louisiana Republican with a senior position on the House Financial Services Committee.  However, Baker had his own recovery-financing scheme, already in bill form.  He did not want distractions.  “Baker lectured us on his Louisiana recovery program and didn’t even talk about what we wanted,” Capital One merger coordinator Miles Reidy recalled.  (Interestingly, although Baker arguably should have had a lot of clout, his concept was nixed by the White House.) [3]

Bank representatives moved on to meet with other members of Congress.  In addition, there were talks with administration officials, including some at the SBA and the White House.  Contacts also were made with the National Economic Council, part of the president’s advisory team.

Recalled Goldberg: “We sort of built a case that said, ‘Look, the SBA is not equipped to respond quickly to a disaster of this magnitude … If you consider leveraging the infrastructures and the talents of local banks, you can actually speed the process … We made the case over and over again.”

In early November, the companies’ political operatives got a quiet tip that the SBA was being called to testify before a congressional committee and was going to roll out a pilot program to be called Gulf Opportunity Loans.  Goldberg reviewed what they were proposing with someone from OMB (Office of Management and Budget).   “They took about half of what we had suggested …”

SBA wins out

After more jockeying, a program eventually ended up in the SBA, modeled after something already in place called “SBA 7A loans.”

Why did the bankers’ ideas get pushed aside?  Goldberg thought the notion of a subsidy “was very divisive” in the GOP-controlled Congress, and, “There also was a pretty pervasive apprehension about sending lots of money to the state, because people had some fear that the history of politics and corruption would somehow re-emerge.”

WHAT THEY SAW: Bank lobbyists tour devastated areas / Photo: FSRT

WHAT THEY SAW: Bank lobbyists tour devastated areas / Photo: FSRT

Bringing in public policy leaders

While area banks worked to be part of recovery financing, they also encouraged political leaders and others who influenced public policy to come to the area to see conditions firsthand.

Hibernia helped bring more than 60 financial services legislative specialists to New Orleans in early December, through the Financial Services Roundtable (FSRT).  Its longtime legislative director, Lisa McGreevy, took a keen interest in the Gulf Coast, particularly New Orleans.  She organized the trip for FSRT’s Housing Policy Council “to better understand current circumstances and possible rebuilding scenarios.”

RUIN EVERYWHERE: Views of the Lower 9th Ward / Photo: FSRT

RUIN EVERYWHERE: Views of the Lower 9th Ward / Photo: FSRT

Eye-opening tour

The group arrived Dec. 6 and began a fact-finding tour with remarks from Hibernia’s Herb Boydstun.  Then, this writer helped guide them around the city, including the highly publicized 9th Ward, eastern New Orleans, Gentilly, Lakeview, St. Bernard and other flooded areas.

With a police escort, the lobbyists got a close look at how things really were.  By the end of the three-hour trip, with stops at ruined homes, they appeared shaken.  They admitted they could not have grasped its scope without seeing it.

Over the next day and a half, they met with city leaders, developers and recovery experts and Fannie Mae, Freddie Mac and HUD representatives.  After returning to Washington, Bob Barnett, an FSRT staffer, wrote a summary, some of which follows:

RUBBLE: Where homes used to be / Photo: FSRT

RUBBLE: Where homes used to be / Photo: FSRT

What we saw:  Metro New Orleans … from the French Quarter through the 9th Ward and up to Lake Pontchartrain we saw mile after mile of neighborhoods of single family homes with waterlines well-defined on the exterior … as high as near roof top and as low as a foot or two …

Lower 9th Ward:  The entire area is devastated.  We saw only a half dozen people in … an hour drive through its neighborhoods, and when we had an opportunity to look into one of the houses (almost all are small, one story, maybe two-bedroom houses), the interior was a total mess … 

Upper 9th Ward:  The houses are standing but waterlines are high there too, usually at about 4 or 5 feet above the surface of the roadway.

WORDS FAIL: One of many residences / Photo: FSRT

WORDS FAIL: One of many residences / Photo: FSRT

More upscale areas:  We also toured more expensive neighborhoods (some near the lake), and walked through an upscale home … in which the water had sat at the four-foot level for three weeks.[4]

Hospitals and school:  We passed by hospitals and universities and schools with waterlines up as high as four feet on the exterior and no signs of activity…

Garden district:  The Garden District … seemed to have avoided flooding.  As we moved farther away from the river, however, the waterlines once again reappeared on houses …

Eastern New OrleansEastern New Orleans was not appreciably different from the Upper 9th Ward … We saw no signs of serious reconstruction activity.

UTTER DEVASTATION: D.C. lobbyists walk through homes / Photo: FSRT

UTTER DEVASTATION:
D.C. lobbyists walk through homes / Photo: FSRT

St. BernardWe traveled … through the marshlands, over the “Mr. Go” canal and into Chalmette … No property we saw during our trip … seemed to have avoided damage. 

Eleven follow-up items

After its trip, the council developed 11 areas of interest the group intended to monitor in Washington, including flood insurance claims and payments, flood maps and rezoning and the Baker bill.

Bleak political landscape

Despite a great deal of hand-ringing by public officials, political turmoil seemed the order of the day.

LAKEVIEW: Upscale homes also ruined / Photo: Russ Hoadley

LAKEVIEW: Upscale homes also ruined / Photo: Russ Hoadley

There was competition among disaster-stricken Gulf Coast states over their “fair share” of the recovery pie.

Acrimony was reflected in partisan relations between Louisiana’s Democratic governor, Kathleen Blanco, and the Republican administration, and between Blanco and Nagin, a fellow Democrat who supported Blanco’s Republican gubernatorial opponent, Bobby Jindal.

Mayor Ray Nagin’s eccentric political style did not help, especially his penchant for peculiar statements (i.e., that New Orleans should be a “chocolate city.

The diminished influence of Louisiana’s nine-member congressional delegation also was a factor.  Its power waned after the embarrassing resignation of Bob Livingston[5] in 1998 and continued to slide with retirements of veteran Washington heavy-weights Billy Tauzin (from the House, for health reasons) and John Breaux (from the Senate), and more recently, the disclosure of an alleged bribery scandal connected to Rep. William Jefferson.

Some in Congress apparently thought, cynically, that freewheeling New Orleans and Louisiana finally had gotten what they deserved.

Whatever the reasons, political leadership seemed in short supply after the disaster.  Hibernia’s Bell, reflecting on months of difficult and frustrating lobbying efforts, felt he had been “… listening to Congress make up excuses not to help.”

Then a bright spot:  Shared banks

Sometimes an exception proves the rule.  While a lot of the interaction between banks and the government was unsatisfying at best, there was one exception – what came to be called “shared banks.”

Kyle Waters remembered well the meeting with La. Commissioner of Finance John Ducrest and the Louisiana Bankers Association (LBA).  The state’s top bank regulator urged the bankers to get their undamaged offices re-opened as quickly as possible, especially in Jefferson Parish.  At the same time, he did not want less-damaged banks to have an unfair advantage over their more-damaged brethren.

Nor did want to mandate how these two objectives should be met.  He asked the bankers to work out a plan, and then surprised them by walking out of the room.  He expected them to hammer something out right then.

PETER GWALTNEY

PETER GWALTNEY

GUY WILLIAMS

GUY WILLIAMS

Peter Gwaltney, executive director of the LBA, and Guy Williams, its president, guided the discussion.

Bold idea

Waters, mindful that he represented the state’s largest bank, was quiet for a while.  He didn’t want to ramrod something that might alarm community bankers. However, when he saw the discussion flagging, he stepped up with a bold idea, seeking a “win-win” solution.

It was quite simple: “For those of us who have offices we can open, let’s share them with those who can’t.”

It took the room by surprise.  Bankers who usually competed were being offered a way to cooperate.  Why not share facilities until damaged ones could come back on line?

The notion was not embraced immediately, but before long, Gwaltney summoned Ducrest.  They sketched it out for him and he was pleased.  His office would endorse and promote it, beginning with a press conference.

SHARED BANKS: Don Powell congratulates local bankers / Photo: Paul Bonitatibus

SHARED BANKS: Don Powell congratulates local bankers / Photo: Paul Bonitatibus

A total of 13 ‘shared’ offices

The bankers decided to open 13 offices, split about evenly in Jefferson Parish between the east and west banks of the river.  As they hammered out details, they cemented the “shared bank” concept, in which there might be as many as six competitors under one roof.

They implemented the plan Sept. 14 with a press conference featuring FDIC Chairman Don Powell, Lt. Gov. Mitch Landrieu, Parish Pres. Aaron Broussard, Ducrest, Gwaltney, Bonitatibus, Waters, Omni Bank Pres. Jim Hudson and others.

Bob Tusa and his area managers were instrumental in getting the Hibernia locations up and working.  Dennis Schexnayder helped on the West Bank and Darlene Cashio on the East Bank.  “It was unprecedented … an awesome, kumbaya[6] experience,” Tusa recalled.

A SHARED BRANCH / Photo: Paul Bonitatibus

A SHARED BRANCH / Photo: Paul Bonitatibus

After the press conference, Powell toured a shared branch.  “I was very moved to see all these banks cooperating with one another and working … for the greater good … It’s like having competitors such as Bill Gates and Steve Jobs set up a computer company together under one roof,” he said.  Once a community banker himself in Texas, Powell thought bankers would “do what needs to be done to get their neighbors and customers back on their feet.”[7]

Reassuring words

The FDIC chief reassured residents not be concerned about the safety of their insured deposits.  He asked consumers to be patient as banks worked to address concerns.  The FDIC and other regulators asked banks to help victims by doing things such as waiving ATM fees and increasing cash withdrawal limits

HOW IT WORKED: Omni Bank shares space in a Hibernia office / Photo: Paul Bonitatibus

HOW IT WORKED: Omni Bank shares space in a Hibernia office / Photo: Paul Bonitatibus

Hibernia implemented all of their recommendations that applied to its services.

During Powell’s visit, The FDIC reported all of its 280 insured banks in the disaster area were operating, with 93% of branches – 4,693 — open.  It noted that 33 temporary locations had been opened in the three-state-area.[8]

In January 2006, the agency stated that Gulf Coast area banks were up against the biggest challenge from a natural disaster the U.S. industry had ever faced, according to a story in The Biz Network.   The agency said it was too early to determine how severe the impact might be, but believed banks had weathered the crisis well.

[1] Before retiring in November 2005, this writer was a member of the LBA’s board of directors and of its Public Affairs Council.  Paul Bonitatibus, Hibernia’s president of consumer banking, subsequently assumed the board seat.  Pat Bell also was a member of the group’s Public Affairs Council.

[2] “GO” stood for Gulf Opportunity.  These loans were just one of many recovery programs.  An even larger one for home owners called The Road Home was approve May 30, 2006, by the U.S. Department of Housing and Urban Development (HUD).  This $4.6 billion plan was said to be the largest single housing recovery program in U.S. history.  The money was part of a $6.2 billion CDBG grant to Louisiana for overall long-term recovery.  Other funds were earmarked for a $368 million infrastructure rebuild, interest-free small business “bridge loans” and administration of The Road Home.  Another $4.2 billion was sought from Congress for New Orleans public housing.

[3] Although it had attractive features and began to make its way through Congress, Baker’s plan died when the administration signaled that Bush opposed it.

[4] The residence at 20 Bluebird St. in the Lake Vista area off Robert E. Lee Boulevard, which the group inspected, was the home of the author and his wife.

[5] In 1998, Livingston succeeded Newt Gingrich as Speaker of the House at the same time the Bill Clinton-Monica Lewinsky scandal was unfolding.  Livingston resigned shortly after attaining the powerful seat, when he divulged that he too had been involved in a dalliance. Source: Wikipedia.

[6] “Kumbaya,” a song composed in the 1930s, enjoyed popularity in the ‘60s, when it became associated with the civil rights movement.  It is copyrighted by The Croton Press, Croton-on-Hudson.  Source: Wikipedia

[7] Not long after, on Nov. 1, Powell was named by Pres. George Bush to head the Gulf Coast recovery for the federal government.

[8] FDIC News Release: “Banks Opening More Branches in Areas Affected by Hurricane Katrina, Helping Communities Rebuild,” Sept. 14, 2005.

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