Bank of New York Has New Strategy to Get Northeast: Applies to Fed to Merge Conn. Firm into Subsidiary

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NEW YORK -- Bank of New York Co. and its counsel believe they have found a way for the New York company to buy a Connecticut bank, regardless of whether regional interstate banking zones are deemed by the courts to be constitutional.

Bank of New York said Monday it will apply to the Federal Reserve Board to merge Northeast Bancorp Inc. of New Haven, Conn., into a Bank of New York subsidiary.

The application to the Federal Reserve may switch the focus of the debate over New England's regional banking zone from whether or not it is constitutional to what the intent of Congress when it passed the Douglas Amendment to the Bank Holding Company Act in 1956.

Bank of New York, in a memorandum to the Federal Reserve in support of the application, argues that for the purposes of the Douglas Amendment, Connecticut's interstate banking law authorizes the acquisition of Northeast.

"My best guess is that they will try to dredge up the intent of Congress when Douglas was passed," said John Lyons, who heads the investment banking firm of Lyons, Zombach & Ostrowski. "If I had to bet on who was right, I'd bet on counsel to Bank of New York."

On Aug. 2, Bank of New York agreed to acquire Northeast for 185% of the Connecticut company's book value at the time the transaction is closed. The agreement, which currently has a value of about $200 million, lasts seven years or until state or federal laws are changed to allow the merger to go through.

Brian J. Woolf, Connecticut's banking commissioner, subsequently stated that the Bank of New York-Northeast combination could not be completed under Connecticut's interstate banking law.

According to the Connecticut statute, only banks from other New England states with reciprocal laws can buy or establish Connecticut banks. Challenge to Connecticut Law

Just days before signing the agreement with Bank of New York, Northeast filed suit to overturn the Connecticut statute. Citicorp filed a lawsuit against a similar law in Massachusetts.

In December, Judge T.F. Gilroy Daly of United States District Court in Bridgeport, Conn. …