CEO Of Paramus-Based Bank Bashes Obama Tax

The Record ( — Saturday, January 16, 2010

The Record

Only one New Jersey-based bank is big enough to be subject to President Obama's proposed tax on the country's largest financial institutions to deter excessive risk-taking and recover taxpayer money paid to bail them out.

That bank is Paramus-based Hudson City Bancorp Inc., which did not take any bailout money. Ronald Hermance, Hudson City's chief executive officer, strongly objects to his bank getting lumped in with institutions such as Citigroup Inc., American International Group Inc. and Bank of America Corp.

In an interview Friday, Hermance said that the tax would cost the company roughly $45 million this year. It "makes no sense" and he will "vigorously protest it," he said.

"I paid $350 million in federal and state income tax [last year] and $60 million for FDIC assessments to pay for banks that failed,'' Hermance said. "Now they want $45 million for a bailout I did not participate in? Wouldn't you be angry?"

Hudson City did not make the risky sub-prime loans that started the financial crisis in 2008, he argues, and the bank increased lending last year when other large lenders cut back to preserve capital.

"All I did was make more mortgages last year than ever before," he said. "I increased my lending, which is what the government asked us to do."

The tax, which would start after June 30, would be in place for at least 10 years and would target institutions with more than $50 billion in assets. It would be equal to 0.15 percent of an institution's liabilities, excluding deposits insured by the Federal Deposit Insurance Corp.

Hudson City shares fell 14 cents, or 1 percent, to $13.84, Friday on the Nasdaq Stock Market. The stock dropped 14 percent last year.

For Hudson City, borrowings from the Federal Home Loan Bank, used to make mortgage loans, would be taxed, Hermance said. The CEO said he will contact federal lawmakers in the days ahead to make his case why the tax should not be approved.

Analysts estimate the country's top four banks would pay $2 billion each. The tax would raise about $90 billion over 10 years, the White House said in a fact sheet.

The Obama administration said the tax would be a deterrent against excessive leverage — or borrowing — by banks. Most of the big banks have already repaid the bailout funds, with interest.

Phyllis Salowe-Kaye, executive director of consumer watchdog New Jersey Citizen Action, and a recently appointed member of a consumer advisory council to the Federal Reserve, supports the tax.

"The policy is certainly welcomed by us and the people who do the kind of work Ido," she said. Her organization negotiates community investment agreements with banks, oversees foreclosure-counseling programs, and advocates for consumer interests in a number of areas. "The banks that benefit from taxpayer money need to be taxed to repay that money," she said.

Some insurers, including Newark-based Prudential Financial Inc., which also received no bailout money, may also be targeted, but a company spokesman said Friday it is unclear if the insurer would be hit.

"That's what we're trying to find out," said Bob DeFillippo, the spokesman. "We are taking a very close look at it," he said.

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