Fleet/Norstar To Return More Bad BNE Loans

Fleet/Norstar Financial Group Inc. said Tuesday that it will give $2.5 billion in problem loans from Bank of New England back to the government, in addition to the $5.5 billion previously announced.

The new addition is in line with the expectations of analysts. Fleet, which is acquiring the failed bank from the Federal Deposit Insurance Corp., can return troubled assets for up to three years. Analysts expect Fleet to give back an additional $2 billion in assets before the period is up.

"Historically, there have always been additional puts," said Nancy Bush, an analyst for Brown Brothers Harriman in New York, alluding to major assisted acquisitions in Texas.

H. Jay Sarles, president of Newco, the Fleet unit that is overseeing the merger of the Bank of New England banks, said the return of additional loans would depend on the length of the New England recession.

Unit to Handle Assets

Fleet will manage the bad assets for the FDIC via a new unit, dubbed Recoll. Mr. Sarles said the unit will probably bid to manage other bad assets from future New England failures.

"We're interested," said Mr. Sarles. "Realistically, there are going to be other failures, and we expect to bid."

Fleet, already the strongest big bank in the region, will reap extra profits as a servicer of New England's bad assets.

Fleet's Recoll will resemble so-called collection banks set up by NCNB after its acquisition of First Republic Bank of Texas in 1988 and by Banc One after its acquisition of the failed MCorp Banks in 1989.

As part of its contract with the FDIC, Fleet will receive an expense reimbursement of 25 basis points on collections on the bad assets.

Fleet said that it expects to to earn up to approximately $110 million in incentive fees from the FDIC over the five-year period allotted for liquidation, collection, and management of the classified assets.

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