Fleet to Buy $500 Million Of FDIC Loans
Saying the New England economy is near the bottom of its slump, the chairman of Fleet/Norstar Financial Group unveiled a plan Thursday to buy about $500 million in classified loans from the Federal Deposit Insurance Corp.
"We've all been feeling sorry about the economy," said Fleet's chairman, Terrence Murray. "This initiative will help sound but struggling borrowers get back on their feet."
The FDIC and Fleet said the program will permit the bank to renegotiate the terms of some loans. Most loans held by the government are being liquidated, putting borrowers or some of their projects out of business.
From BNE and Maine Savings
Fleet, based in Providence, R.I., will buy the loans from a pool of $6 billion in assets that had been skimmed by the government from Bank of New England Corp. and Maine Savings Bank.
Fleet bought the banks earlier this year. It has been servicing the loans, reaping fees from the government for successful collections on the bad loans through its Recoll Management Corp. subsidiary. But Fleet feels it can make more money working out the loans at its bank units. Typically, Recoll liquidates loans.
Fleet will buy the loans at 100 cents on the dollar over the next four months. "That makes it a good deal for the FDIC," Mr. Murray said.
Fleet Has Put Option
But the arrangement is even sweeter for Fleet, which will have an option to put back any of the loans until July 1994 if they prove to be unmanageable. This is the first time that the FDIC has given a buyer of classified loans a put option.
Fleet plans to purchase between $400 million and $600 million from a $1.4 billion pool of 4,800 loans that Recoll currently manages.
Fleet will purchase all commercial and industrial loans in the pool smaller than $250,000. The only bigger loans and real estate loans it selects will be those less than 30 days past due that have a collateral-to-loan ratio of at least 75% and are unrelated to other assets in the pool. The loans also must be free of pending litigation.
|Worth Working Out'
Fleet said it considers the loans it plans to buy to be performing, although some do not technically meet stiff government standards because of a drop in the value of the collateral behind them.
"These loans are worth working out," said Mr. Murray. "We want to put them back in the banking system."
Analysts said the Fleet decision is part of a broad strategy to prove to the Massachusetts and Maine market that it is a strong and compassionate competitor. Fleet is prospering while many of its New England competitors are struggling to survive.
"Some bankers were telling me that Fleet would come up here and fall asleep," said James Moynihan, an analyst at the Boston office of Advest Inc. "But they're being very aggressive."
He said Fleet officers are actively soliciting business in Massachusetts and Connecticut, telling businesses that its loan spigot is open.