Bank of Boston: Fed Move Won't Bar a Merger

The Federal Reserve Board's decision to strengthen its regulatory oversight of Bank of Boston Corp. will not affect any plans the bank company has for expansion, according to a bank spokeswoman and banking analysts.

The company signed a formal agreement with its chief regulator earlier this week. The plan requires submission within 60 days of a written plan for maintaining an adequate capital position, including current and future sources of funds.

The agreement, which strengthens a memo of understanding signed with the Fed in 1989, does not indicate a decline in Bank of Boston's health, said Constance Hubbell, a bank spokeswoman.

The Fed action, she added, should not affect any expansion plans being considered.

The Merger Solution

Bank of Boston has been looking for merger partners as a way to restore profits and build market share amid a crumbling New England economy. It is believed to be in serious talks with neighboring Shawmut National Corp. A combination of the two would undoubtedly require the banks to write off or segregate many bad loans and raise substantial amounts of capital, analysts said.

Nancy Bush, an analyst at Brown Brothers Harriman & Co., said the Fed's timing reflects pressure to bare its fangs after scandals at Salomon Brothers and Bank of Commerce and Credit International. The Fed has been accused of lax oversight in both cases.

"We are probably in for a round of these letters of agreement," Ms. Bush said, adding that Shawmut itself may be next.

She also predicted a merger between Bank of Boston and Shawmut after Bank of Boston reports third-quarter earnings in late October.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.