Fleet Seeking To Buy Loans From FDIC
In a bullish sign for the New England economy, Fleet/Norstar Financial Group is negotiating to buy about $500 million of problem loans that the government inherited from the collapse of Bank of New England.
Fleet bought Bank of New England in July, after it was cleansed of $5.5 billion in nonperforming loans. The failed bank at the time had $14.5 billion of assets.
Fleet Informs Analysts
A senior Fleet official confirmed at a bank analysts' meeting Thursday that the company is negotiating to buy about 10% of the bad-loan portfolio from the Federal Deposit Insurance Corp. He also indicated that Fleet is confident of its ability to recover value on some other nonperforming assets.
The comments from H. Jay Sarles, president of Fleet's Massachusetts bank franchise, heartened analysts who had seen nothing but gloom in New England for two years.
Mr. Sarles' remarks were made the same day that government regulators issued guidelines aimed at relieving pressure on banks to write down real estate loans and establish reserves against them.
Indication of Confidence
"Fleet's effort is a welcome sign of confidence that the market is turning around," said Gerard Cassidy, an analyst for Tucker, Anthony in Boston. "They see light at the end of the tunnel."
In another indication of optimism, Mr. Sarles said Fleet may back off from a plan announced in June to return $2.5 billion of additional Bank of New England real estate loans to the government. He said the company's confidence in the loans and the economy may lead it to return just 60% of that amount.
Fleet has the right to put back to the government an unlimited amount of loans for up to three years.
Officials at the Providence, R.I.-based bank company, the nation's 15th-largest, with $46 billion in assets, confirmed that negotiations are taking place with the government. It would not give further details.
Analysts said Mr. Sarles did not comment on the nature of the loans Fleet is trying to buy. But most are believed to be for projects such as suburban stores and small offices, rather than for raw-land development.
Mr. Cassidy said he believes that the company is negotiating to buy the $500 million of loans at market value. Mr. Sarles told analysts that Fleet wants the right to put back the loans to the government if they prove uncollectible.
Fleet's action "shows that it thinks the New England market has stabilized enough for it to place an accurate value on these loans," said John Soderlund, a managing partner at Furash & Co., a bank consulting firm in Washington, D.C.
If Fleet wins on its terms, analysts said, it would be getting the loans at a bargain basement price.
The bank's moves also indicate that Bank of New England's interim management, under chairman Lawrence K. Fish, had made strides in alleviating loan problems before the government seized the company.
Effect on Workout Unit
Fleet's attempt to repurchase the loans, however, could take some business away from another part of its burgeoning empire. Bank of New England loans in the government portfolio are being managed for a lucrative fee by Recoll Management Corp.
The unit is trying to recover value for the FDIC on about $6 billion of nonperforming assets - including $5.5 billion from Bank of New England and about $500 million from Maine Savings Bank in Maine. Fleet bought Maine Savings Bank in January.
Fleet said last summer that it expected to earn about $110 million in incentive fees from the FDIC over five years for managing the bad assets. "Their effort to buy back the loans shows that Fleet thinks it can make more if they own the loans and work them out," said Mr. Cassidy.
"To me, it shows that Fleet is moving ahead of the other banks in the region," added James Moynihan, a Boston-based analyst for Advest Inc.
Fleet has positioned itself to make money on two fronts in New England, as a manager of bad assets through Recoll and as the region's dominant retail bank.
Fleet's moves to take control of the government-owned loans is supported by many bankers in New England. They are concerned that the government's huge portfolio of bad assets in the region is inhibiting their ability to sell foreclosed real estate and hurting the ability of their own borrowers to rebound.
"The government is simply not equipped to work out the loans," said Kevin Gage, president of Bank of Darien in Connecticut, who said many borrowers are being forced by the government into bankruptcy. "Their interest is to get their money as soon as possible."