First NH Posts $30 Million Loss

Announcement Follows Victory in FDIC Bidding

One day after winning a spirited bidding contest for two failed New Hampshire banks, First NH Banks announced a sobering third-quarter loss of $30 million.

The poor results, whose severity surprised analysts, followed the company's announcement that it plans to cut costs by 40% over three years at Amoskeag Bank and Bankeast, the two companies purchased Thursday from the Federal Deposit Insurance Corp.

Beat Out 2 Profitable Banks

First NH Banks, a subsidiary of Bank of Ireland, won the bidding over KeyCorp of Albany, N.Y. and Fleet/Norstar Financial Group Inc. of Providence, R.I., both profitable institutions.

The sale of the New Hampshire banks to an ailing subsidiary of a foreign institution may cause a stir in political circles, some analysts suggested.

FDIC Appears Confident

In the first nine months of the year, First NH has lost $70 million, primarily because of deteriorating real estate values and asset quality.

Asked about the wisdom of letting the struggling First NH expand, Harrison Young, the FDIC's director of liquidations, said the agency was reassured by the amount of equity that Bank of Ireland has pumped into First NH Banks for the specific use of acquisitions.

"I see this as a major step in encouraging private capital to enter into the bank resolutions," he said.

Since purchasing the New Hampshire bank in 1988 for $370 million, Bank of Ireland has lost about $150 million, said Gerard Cassidy, an analyst in the Portland, Maine, office of Tucker, Anthony & Co.

As part of its arrangement with First NH, the FDIC is keeping $650 million in bad loans from the two failed banks.

Bank of Ireland said in a press release that the acquisition, which almost doubles First NH's size to $4.5 billion, will dilute the unit's problem loans by bringing "clean assets" onto its books.

Some analysts were skeptical.

"Bank of Ireland won't be able to recoup their investment for 10 years," said Mr. Cassidy.

Immediate Downgrade

Standard and Poor's Corp. responded Friday by downgrading Bank of Ireland's senior long-term debt to single-A-minus from single-A, citing "severe asset-quality problems" at the New Hampshire subsidiary.

First NH paid the FDIC $50 million in cash for the companies, and the agency reinvested the $50 million in nonvoting preferred stock. Under what the government calls a shared-equity arrangement, First NH also put in $27 million of equity.

The stock purchased by the FDIC carries a dividend of 10.25%. First NH can redeem the stock after three years.

The Thrift Resolution

On the same day the deal was announced, the government announced the sale of three New Hampshire thrifts to an investment group led by former Shawmut National Corp. vice chairman William Craig.

That deal, too, involved shared equity. The Craig group put in $38.5 million, while the FDIC added $31.5 million in the form of nonvoting preferred stock. The government also agreed to keep $600 million of bad loans from the Craig group's thrifts.

The thrifts - Dartmouth Savings Bank, New Hampshire Savings Bank, and Numerica Savings Bank -- have been renamed New Dartmouth Bank.

The FDIC estimated the cost of the First NH deal to its insurance fund at $342 million. The Craig deal cost it $624 million.

"You can't call anything that costs the government $966 million a good deal," the FDIC's Mr. Young said. But he insisted that the deals represented "the lowest cost to the government."

Reversal of Policy

In both deals, the government reversed its usual policy of giving the buyers the right to return loans of the acquired banks that go bad in the future.

It persuaded the acquirers to retain some problem residential mortgages and other consumer loans, which the government said are difficult to manage.

But the FDIC agreed to reimburse the buyers for most of the losses incurred in the portfolio over the next three years. Sources said the reimbursement would cover 90% of the losses.

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