WASHINGTON -- Fleet/Norstar Financial Group won the bidding for Bank of New England last April because the Federal Deposit Insurance Corp. board made last-minute changes to the agency staff's cost calculations, according to a report to be released today by the House Banking Committee.

The findings support the widely held view that the FDIC can massabge bids for a failed bank so that it will be awarded to the company that the agency favors.

FDIC officials told House Banking Committee investigators that selecting Fleet to take over BNE sent two messages: future bidders would be more reluctant to ignore the FDIC's instructions as runner-up BankAmerica Corp. did; and outside investors would know their money is welcome in future bank bailouts.

The bid of Providence-based Fleet/Nortstar included $283 million from Kohlberg Kravis Roberts & Co.

BankAmerica's Bid

According to the committee report, FDIC staffers concluded that Fleet's offer was $42 million to $97 million more costly to the insurance fund than BankAmerica's bid, even after discounting for demands the San Francisco bank insisted on beyond the other bidders.

Bank of Boston Corp., the other losing bidder, proposed a takeover that was $104 million to $154 million more expensive than BankAmerica's, according to the FDIC analysis.

After the staff came up with final figures on the bids the morning of April 22, Fleet chief executive Terrence Murray called the FDIC staff and increased the bank's bid by $25 million.

That meant Fleet's bid was still $17 million to $72 million more costly than BankAmerica's.

On Second Book

But the FDIC board decided "with no quantification" to revise its BankAmerica estimate, according to the House committee's investigation.

"In reviewing the cost components of the competing bids, it was the judgment of the FDIC board of directors that the agency's staff had underestimated the costs to the agency relating to the specific nonconforming components of the Bank of America's bid," the committee's report said.

"It was the judgment of the board that the understatement of cost was at least equal to the remaining $17 million cost differential . . . and may have exceeded that amount."

Harrison Young, the FDIC's director of resolutions and its lead negotiator on the deal, said in an interview Thursday that the FDIC board made its decision based on cost, not any secondary considerations such as attracting outside capital to the industry.

"The board has to exercise judgment about what the right numbers are," he said. "The board may make different judgments than the staff. That's what the board's for."

While the House investigators raised questions about how the FDIC selected a winner, the last sentence of the 254-page report stated that "the selection of Fleet/Norstar Group appears reasonable."

The FDIC estimates the BNE deal will cost $2.5 billion dollars.

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