Correspondent banking: People's in Connecticut Building a Business

Community banks in Connecticut are seeking in-state sources of correspondent banking, because the traditional providers - big regionals - aren't satisfying their clients, analysts and community bankers say.

The state's largest providers, Providence-based Fleet Financial Group and Boston's Shawmut National Corp., are preoccupied with internal consolidation in preparation for their planned merger, these observers say.

In addition, the two regionals, together with Bank of Boston Corp., the state's other large provider, have retreated somewhat during the last decade as part of cost-cutting efforts, although they're all still active.

Sensing a market opportunity, People's Bank of Bridgeport, the state's largest independent bank, with almost $7 billion in assets, has started providing a full menu of correspondent banking services over the past year.

"Community banks are working among themselves and with People's to take the place of Shawmut and Fleet," said Joseph M. Balzo, vice president and manager of correspondent services for People's. "There's a sense of opportunity in Connecticut that these mergers are bringing to the smaller banks."

Traditional correspondent banking services usually include check processing, data processing, federal funds sales and purchases, securities safekeeping, and cash-and-coin currency services. Also, correspondent banks help with loan participations when community banks are faced with a request that exceeds their legal lending limits.

Historically, the three large New England banks - Fleet, Shawmut, and First National Bank of Boston - together with Mellon Bank Corp., Pittsburgh, have provided much of the correspondent services for Connecticut's community banks.

Fleet spokeswoman Meg Pier said the Providence-based company still considers correspondent banking to be "a major line of business" and expects to serve more than 700 community banks in New York and New England after the merger.

And Richard Hilperts, director of domestic correspondent banking services at Bank of Boston, said his five New England correspondent relationship managers "are booking a full business for us.

"It's always been a good business for us,"Mr. Hilperts said. "It's one we intend to stay in and aggressively market."

But at various times, the New England regionals have stopped providing data processing services to correspondents during off-peak hours, only to reenter the field later, said John Carusone, president of Hartford's Bank Analysis Center.

And the staffing levels of the correspondent departments have all dropped from their 1980s' levels, when the subsidiaries were still independent and focused in-state, Mr. Balzo said.

"There have been a lot of fits and starts at those institutions in providing traditional correspondent banking services," Mr. Balzo said. "They're constantly redefining how they're delivering the services to the state of Connecticut."

Relying on the big regionals meant "poor service, poor pricing, lack of direction, and a constant state of change," said Jay Lent, chief financial officer of New Milford Bank and Trust Co.

People's was a big service provider to Connecticut's local banks even before getting into correspondent banking. In 1985 the bank started providing wholesale mortgage lending and credit card marketing; half the state's 96 community banks are now customers for those services.

Occasionally, People's has also participated in loans with community banks. And it already had a base of technology and back-office services to expand upon, including a sophisticated cash management system, Mr. Balzo said.

Now the bank is promoting a full array of correspondent services to banks in Connecticut, western Massachusetts, southern Rhode Island, and Westchester County, N.Y. Since starting the full-scale marketing effort last year, the bank has picked up about 20 customers in Connecticut and Westchester.

"People's is now the senior Connecticut-headquartered institution," Mr. Carusone said. "They've inherited the mantle as far as correspondent banking services are concerned."

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