Boston Safe Slashes Personal Loans, Trims Private Banking Staff by 8%
Retrenching after rapid growth in the late 1980s, Boston Safe Deposit and Trust Co. is trimming its private banking staff and curbing personal lending.
The changes are intended to help restore some lost luster and profitability to the century-old bank, which was set up to serve Boston's elite and is now under the American Express corporate umbrella. The bank's image was tarnished by unsuccessful expansion and an accounting scandal in 1989 at its parent -- the Boston Co. -- that forced out top management and touched off a yearlong reorganization.
In its private bank, Boston Safe has laid off about 40 junior officers, or almost 8% of its staff, in the past few months, president Christopher M. Condron said in an interview last week. The bank is eliminating a layer of management to put senior staffers in direct contact with customers. Senior officers with expertise in particular areas now oversee client portfolios.
Back to Basics
James Moynihan, an analyst with Boston-based Advest Group, said that having middle managers deal with clients had been "one of the flaws in the system. . . . They realized they had a problem, they addressed it, and now it's back to the old conservative way that stood them so well in the past."
The private banking unit, which is Boston Safe's main business, is also playing down personal lending to concentrate on asset management and mortgage lending. In the past year or so, the bank has chopped back its portfolio of personal loans to $350 million from $500 million.
The bank set aside $90 million last year to cover losses on personal loans, contributing to a $137.7 million loss.
Despite its streamlining efforts, the private banking unit is aiming for steady growth in assets under management. The bank's portfolio of personal assets under management and custody grew from $4.4 billion in 1987 to almost $7 billion at the end of the first quarter of 1991. Personal and trust assets rose $750 million last year and $250 million in the first four months of this year.
Back Offices Centralized
When it started shifting senior officers in December, the private banking unit moved back-office operations for its New York and California subsidiaries to Boston. All told, 130 of the 500 people in the private banking division are in new jobs, said Mr. Condron, who was appointed bank president in late 1989 to combat earnings problems and shrinking deposits.
The New York subsidiary now houses 18 employees, down from 37 last year. The three California offices now employ 40, down from 56 six months ago.
Industry sources have suggested the New York office -- headquartered in the former J.P. Morgan & Co. office at 40 Rockefeller Center -- is too expensive for Boston Safe to maintain. Mr. Condron concedes he would move it to another site if someone took over the lease. But "we wouldn't move out of New York," he said. "We're very committed to the market."
Along with planned job reductions, the bank has lost several managers who were unhappy with the strategic changes, said industry sources. Such turnover often leads to lost business in a field where individual relationships are paramount.
Mr. Condron said some clients have left the bank, but added that both the asset management and trust businesses are "up substantially this year."
He called the new strategy "prudent management" to "create a safer bank."
Industry sources said Boston Safe was forced to reorganize because of overly aggressive growth in the late 1980s. During that period, the Boston Co. added offices in New York and California.
The Boston Co. is owned by the Shearson Lehman Hutton Inc. unit of American Express Co. Before its problems surfaced in the late 1980s, the Boston Co. helped buoy Shearson's financial performance.
Short-Term Investments Cut
Boston Safe's assets soared from $7.8 billion in 1986 to $17.5 billion in 1988. As part of is back-to-basics approach, Boston Safe has trimmed assets to $9.7 billion. The reduction was achieved primarily by paring short-term investments and jumbo certificates of deposit.
Aside from private banking, Boston Safe has made few strategic changes in its other core businesses -- institutional investment, master trust, and mutual funds.
The most obvious differences are in the private banking arena. Well known for jumbo mortgages, the bank branched out into higher-risk areas in the high-flying '80s. Loans to embattled developer Donald Trump for a yacht and Florida residence have come to symbolize how the bank strayed from its main line of business.
Boston Safe's reorganization began when new management was installed after an accounting error caused the Boston Co. to overstate profits by $30 million.
The bank's restructuring contributed to last year's loss, which was attributed primarily to charges for personal-loan losses, the sale of high-yielding mutual funds, and a $44 million charge for software.
But the institution appears to have turned the corner. In the first quarter of this year, it posted net income of $21 million.
PHOTO : Christopher M. Condron Boston Safe Deposit and Trust Co.