Northeast Bancorp Vows Merger Suit

Stamford, Conn. — Northeast Bancorp said it will sue bank of New York for breach of contract in the wake of the collapse of a proposed merger of the two banks.

Northeast said Bank of New York failed to maintain its capital position in accordance with Federal Reserve requirements. The bank said that failure led directly to the Federal Reserve Board’s denial of Bank of New York’s application to buy Northeast.

In it’s decision, the Fed said that the acquisition would have left Bank of New York, the nation’s 13th-largest bank company, with insufficient capital.

The Fed, the nations’s central bank, demands that banks maintain a certain amount of capital compared with assets. The capital ratio standards have became more stringent in recent years.

Even before the Fed issued its decision, the acquisition plan was in trouble.

Under the agreement, Bank of New York would pay 2 1/2 times the book value of Northeast, a New Haven, Conn.-based holding company that operates as Union Trust. But the two sides disagreed over the book value, with Northeast putting it at about $500 million and Bank of New York assessing it at $195.6 million.