Convention Goes on a No-Fat Diet

What do you do about the annual convention when so many banks in your state association are in poor financial condition? You downscale to a half-day meeting at a major city, plan for the required election meetings, and line up only two relevant speakers.

"We can't go to the Cape when our banks are in such difficulties," Marcel Veilleux, president of the New Hampshire Bankers Association explained to me.

This month the bankers went to Merrimack instead. The meeting, which I attended, was a serious one. I saw a different NHBA than at past visits.

Many faces were different. Sure, there was the touching presentation of a plaque to the outgoing chairman; the engraving showed that his father and grandfather had also headed the group. But prominent among the attendees were new faces to New Hampshire.

New Faces of '91

One newcomer was Lawrence Connell, now head of New Hampshire Savings Bank Corp.; he had previously been a strong banking commissioner in Connecticut and chief regulator of the credit union industry. Also new was Dean Holt, now president of Fleet Bank-NH; he cut his teeth on workout credits and secured lending - no-nonsense areas of finance.

Maybe the old closeness was New Hampshire's problem. It has been a close-knit state. In the 1980s, flush with the success of early loans for commercial real estate development, the bankers became relaxed - after all, they knew the borrowers. Many secondary projects financed then caused today's troubles.

Also, the conversion of so many savings banks to stock form provided money that burned holes in the bankers' pockets. They made many loans because they had the money, not because the project was truly bankable.

Lack of diversification is the reason so many New Hampshire banks are in trouble. Real estate became far too important in many banks' portfolios.

Good News from Isaac

The convention goers should have taken heart from a comment of William Isaac, former head of the Federal Deposit Insurance Corp. and now CEO of the Secura Group.

Geographic diversification through repeal of the McFadden Act will be all to the good, he said, because banks were tied too closely to one region or community and its problems.

"Fully 85 of the failed assets have been in four states - Louisiana, Texas, Oklahoma, and Illinois -- states with severely restricted branch laws," Isaac pointed out. And every state plan for bank insurance over the 150 years we had them also went broke, he added. The reason: lack of geographical diversification.

Isaac was optimistic about the community bank's future. The "too big to fail" doctrine will be ended, he said, and relaxing Glass-Steagall restraints will not hurt local banks.

"We will end up with about 20 nationwide retail banks and thousands of community banks," he said. The community banks' emphasis on service instead of rates "will keep them strong and allow them to continue to beat the giants in the marketplace, as they have in the past."


Probing a little deeper to find out what had gone wrong, I spoke with Dean Holt, who in his 14-month stay has reduced first-quarter losses at Fleet-NH from $54 million last year to $3 million.

"How did you bring about such an improvement?" I asked

Holt's immediate answer: "Tenacity." He spoke of the need to impose strict time limits on necessary actions, of the importance of documentation in the files, of forcing borrowers to meet their obligations and getting officers to stop making exceptions on service fees.

But tenacity and doing your homework aren't the whole answer, Holt stressed. "You have to make your loan review people, your auditor, and especially the comments of your bank examiners a resource instead of an irritant."

Working with the RTC

Isaac was asked during the formal session: "Why can't you let the acquiring bank in a merger take on some of the assets that are usually thrown into the |bad bank' and try to work with them, instead of having the FDIC and the RTC liquidate them at a huge loss?"

"The RTC has $160 billion of assets and $200 billion more coming, all in 20 months," he answered. "They don't have the time or people to be creative.

"If you come to them with an idea, they certainly will listen. But you have to take the initiative."

Better Days Ahead

Where is New Hampshire banking headed? The bankers certainly expect better days. Veilleux announced that next year the association will hold a full convention at the Balsams resort, a traditional site.

Leaving the no-fat convention at Merrimack, I felt that diversification would become king among these bankers. They will recognize that a steady commercial-and-industrial loan to a client of 40 years' standing is worth much more than a short-term loan to finance a strip mall, despite the heavy up-front fee.

As one banker said to me on the way to the airport, "Those who have been through the 1980s in New Hampshire banking will never make the same mistakes again.

Mr. Paul S. Nadler is a contributing editor of the American Banker and professor of finance at the Rutgers University Graduate School of Management.

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