Friday, August 20, 2010

AMALGAMATED BANK -CHICAGO POWER - GENE HEYTOW

Banks, casinos and a ... hit list?
  (Casino owner Eugene Heytow)

      Crain's Chicago Business     May 13, 1996   Betty  Healy


         EUGENE HEYTOW 


Gene Heytow seems odd, but he's profitable

As a gambler, Eugene Heytow used to dread the sweep of the rake across a craps table. It meant he'd lost his bet.

But as a casino owner overlooking the table action from the mezzanine, every rake-off is sweet, he says, grinning.

Strange sentiments from a lifelong banker. Then again, Mr. Heytow has long been an oddity among bankers, with substantial interests in gambling and real estate and connections to unions and politics.

A secretive and sometimes eccentric 61-year-old, Mr. Heytow declines to have his picture taken - "for security reasons," he hints darkly. Yet he is wagering millions of his personal wealth on Midwestern riverboat casinos, a highly public pursuit.

Even as the sun sets on the political clout that helped make his name at Chicago's labor-tied Amalgamated Bank, an ailing Mr. Heytow is trying his hand at a new game where money and connections reign supreme.

Indeed, Mr. Heytow's name comes up more often these days at state gambling commission hearings than in banking circles, despite decades as chairman of Amalgamated and of publicly traded Oak Brook Bancshares Inc. - a suburban bank company whose middling performance suits its chairman just fine but could threaten its long-term independence.

Riverboat reshuffling

Mr. Heytow and his investment partners at Oakbrook Terrace-based Aerie Hotels & Resorts Inc. are lobbying state officials to move their money-losing East Dubuque riverboat, the Silver Eagle, to the Vermilion River in Danville. After a hard fight, they won a license last month to run a vessel in Michigan City, Ind., and they have a license pending on a Missouri boat.

If the group's projections in its Indiana application prove accurate, Michigan City could yield $73 million in annual revenues - more than any other property in Aerie's golf resort, hotel and casino portfolio.

"This is the biggest gamble of all," Mr. Heytow concedes.

Though he professes to be a banker first, Mr. Heytow's plunge into casinos is emblematic of his divergent business interests and personas.

There is the conservative, genteel banker who insists on reviewing every loan over $1 million made by his institutions, as well as smaller ones if they're at all unusual.

"I'm very averse to losses," Mr. Heytow explains. "I tend to be happier with lower risk, lower return."

There is also, behind the gentlemanly veneer, a man who's schmoozed and swayed union bosses, Republican governors and Chicago's Democratic mayors, and who's known for a sharp tongue behind closed doors.

Raised in Rogers Park, this son of a Russian-immigrant father grew up with middle-class credentials that match those of the union workers he pursues as customers.

But his Harvard education, University of Chicago law degree and self-made wealth put him in the league of the big-time pols and executives with whom he's done deals over the years.

Powerful friends

Mr. Heytow has seen the highs and lows that come with having powerful friends.

William Daley, brother of Mayor Richard M. Daley, served as president of Amalgamated from 1989 to early 1993, and former Gov. James R. Thompson was an influential friend. Prominent Chicago lawyer and investor Peer Pederson is Mr. Heytow's key partner in the casino venture.

Yet one of Amalgamated's directors until 1992 was former Chicago Teamster official Daniel Ligurotis, who was acquitted of murder in the shooting death of his son. Later, he was ousted from his union post after being charged with embezzlement.

Acknowledging that the business of riverboat gambling is rife with politics, Mr. Heytow insists he's staying out of the fray: "If you're not squeaky clean, everything you do is on the front page of the paper."

Mr. Heytow, never fond of publicity, has become increasingly reclusive in recent years. Rejecting a request to pose for a photograph, he cites an incident 15 years ago, when his name showed up on a hit list of two bank robbers caught by the FBI. Some employees say they're instructed not to call him by name if they pass him on the street.

An air of secrecy prevails at Amalgamated, which Mr. Heytow and a brother-in-law purchased from the Amalgamated Clothing Workers union in 1966.

Public silence

Today's top executives won't disclose their stake in the $632-million-asset company, nor why it's gone through three general counsels in as many years. And they never discuss family matters in public, former employees say, even though both of Mr. Heytow's banks are riddled with nepotism.

Robert Wrobel, president of Amalgamated, was once married to Mr. Heytow's daughter. Richard Rieser Jr., president of $713-million-asset First Oak Brook, is married to Mr. Heytow's niece. Andrew Heytow, Mr. Heytow's son, ran Amalgamated's computer operations until recently, but left after a disagreement with his father, sources say.

The younger Mr. Heytow has little to say about the parting. "I really don't want to talk about that," he says. He does confirm that he's still a director and an investor in the company.

Once a regular at political functions, the elder Mr. Heytow has cut back on his appearances, say bankers and others who know him. That's partly because of health problems, which range from a bad heart to chronic sinus trouble.

Though his ruddy complexion and stylishly coiffed salt-and-pepper hair bespeak vitality, Mr. Heytow leans on a cane when he walks and winces as he lowers himself into a high-backed leather chair in his corner office at Amalgamated. He sends a young driver, whom he calls "Killer," to fetch a forgotten dose of pills - one of several medications he complains he must take regularly.

"I'm an old 61," he says wearily. If Mr. Heytow's body is slowing down, his ambition is not. As the controlling shareholder in both Amalgamated and First Oak Brook - with a dominant stake exceeding 20% in each - he's free to pursue his riverboat enterprises, while also calling the shots on his complaisant bank boards.

Merger ambitions

He still dreams of merging Amalgamated with New York-based Amalgamated Bank, founded by the same union. He envisions a national institution with assets exceeding $2 billion and a populist mission - catering exclusively to workers, their union locals and their national organizations' pension funds.

Such a deal would buff the fading luster of the Loop's single-branch Amalgamated.

Although the bank is still a powerful force in public, or government, deposits (34% of Amalgamated's total deposits come from government agencies, municipalities and legislators - second-highest in the nation), it's nabbing fewer government contracts for check processing and other fee-based services than it once did. In three recent Illinois bids, Amalgamated wasn't even a finalist.

The bank's earnings fell 10% last year, to $4.6 million, a drop Mr. Wrobel attributes to increased spending on technology, advertising and hiring. Return on assets for the year was 0.73%, compared with a 1995 industry average of 1.0%. Return on equity was 11.8%, below the benchmark 15.0% for a well-run bank.

Yet Amalgamated's investors say they're satisfied. The bank pays its estimated 100 shareholders fat dividends: 30% of profits in 1995 and 27.5% in 1994, company executives say. Amalgamated's book value has jumped 35% in three years, to $39.2 million, according to Veribanc Inc., a Wakefield, Mass.-based bank research firm.

With investors earning good money, there's no visible pressure on Mr. Heytow to fashion an exit by jumping into the banking industry's merger fest.

"There's no hurry," says longtime Amalgamated investor and director Sidney Epstein, chairman of Chicago's A. Epstein & Sons International Inc., the architectural firm that designed the old McCormick Center Hotel - a Heytow property that was destroyed to make way for the expanded McCormick Place. "I think it's a very good long-range investment."

Also insisting that he's satisfied is Melvin Katten, a partner with Chicago law firm Katten Muchin & Zavis who joined the board four years ago, at the invitation of then-President Mr. Daley. Mr. Katten has been an Amalgamated investor for about 15 years, buying out smaller investors over the years.

Could be tough to sell

But if shareholders do turn restless, they may find Amalgamated tough to sell. Few banks specialize in public funds, and even fewer focus on unions. Amalgamated's clerks and tellers are unionized, an uncommon situation that most banks want to avoid.

Barring a sale, would it be difficult for investors to unload large blocks of shares?

"I suppose it would be," Mr. Katten says.

Even sister bank First Oak Brook isn't a willing merger partner. For a nine-office suburban banking company with large business clients and retail customers in affluent DuPage County, unions are anathema.

"We have two separate cultures," Mr. Heytow notes, "and I don't want to disturb either one of them."

First Oak Brook has been publicly traded since 1985, two years after Mr. Heytow and a group of investors created a holding company for a string of banks purchased over several years. Merging Amalgamated into it would open the Chicago bank to all the scrutiny and short-term earnings pressures of a public company.

Scrutiny isn't something Mr. Heytow and his bank presidents are accustomed to.

Amalgamated's 16-member board is made up of Mr. Heytow, his son, Mr. Wrobel, eight labor representatives and a handful of prominent business people, including Messrs. Epstein and Katten.

At First Oak Brook, insiders control 64% of the stock. Of that, Mr. Heytow and his wife, Mitzi, hold 21%, with a market value of $8.6 million.

Four of First Oak Brook's seven directors are also investors in Amalgamated: Messrs. Heytow, Rieser and Wrobel and Miriam Lutwak Fitzgerald, a surgeon and daughter of one of Mr. Heytow's former partners, the late Marcel Lutwak.

"The fact of the matter is that the same people are making the decisions" at both banks, observes Daniel Westrope, a senior vice-president and banking expert in the Chicago office of Principal Financial Securities Inc. "They control their own destiny, certainly, regarding whether they sell or not."

They also control their pay and perks.

Amalgamated has higher expenses than most Illinois banks - 4.1% of assets vs. an average 2.9% in 1994, according to Sheshunoff Information Services Inc., a Texas-based bank research firm.

And at First Oak Brook, where Mr. Heytow sits on the board's compensation committee, "the executive salaries are quite large for a bank that size," Mr. Westrope says. On top of 1995 salary and bonus of $550,000 for Mr. Rieser and $444,665 for Mr. Heytow, the executives accepted directors' fees ($17,000 each), an unusual practice for employee board members.

First Oak Brook did post an 8% earnings increase last year, to $6.7 million, or $1.95 a share. Return on assets inched up slightly, to an average 1.03%. Return on equity slipped a half-point to a ho-hum 14.0%.

Mr. Westrope thinks the bank company could do better, perhaps under an acquirer.

"Somebody could take those markets and do more with them than First Oak Brook has done," he argues.

No sale on horizon

But Mr. Heytow has no apparent plans to sell.

"Right now, Oak Brook is earning at a very fine rate; if nothing happens (as far as a takeover bid), that's fine," the chairman says, adding, "We entertain all inquiries."

As for Amalgamated, Mr. Wrobel says, "If anything, we'd be an acquirer. We're not looking to sell."

Mr. Heytow skirts the issue of succession at both banks. As long as he's around, he suggests, he'll be at the helm. His stated retirement date, according to First Oak Brook's latest proxy, is Jan. 1, 2007. He would be 72.

"I think our investors are very happy," Mr. Heytow says.

Meanwhile, he has more pressing matters on his mind.

Mr. Heytow and Aerie partner Mr. Pederson have put up personal guarantees of $25 million to back their $85-million Indiana riverboat project. Plenty of rough water awaits including persuading the Indiana Gaming Commission that a 70-foot-wide boat can sail a creek that measures 100 feet bank-to-bank.

"I don't know if it's going to happen or not," says Floyd Hannon, deputy director of the Indiana commission.

Mr. Heytow won't get any trouble from bank regulators, however. Bankers aren't restricted in their personal investments, says Frank Dreyer, chief of supervision at the Federal Reserve Bank of Chicago, though he notes that, for a banker, "casinos are unusual."

If the Indiana plan does float, there will be ample competition for gamblers, both from a nearby American Indian casino on land and from New York investor Donald Trump, who's installing a higher-profile riverboat in Gary.

But it takes more than a little competition to raze Mr. Heytow: "I'm not afraid of Trump

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