Shawmut National Corp.'s Thomas Wren is holding a reunion with investors in the capital markets.
Mr. Wren, the bank's chief investment and funding officer, this month directed Shawmut's first senior debt issue in years, a $250 million sale of bank notes. Shawmut also has begun raising funds through brokered certificates of deposit this year, and will resume borrowing in the commercial paper market by yearend, after a long hiatus.
"The situation is a lot brighter now than when I first got here," says Mr. Wren, an executive vice president who joined the New England company in 1992.
In recent years, Shawmut has been more focused on raising capital through sales of stock and subordinated debt than on issuing senior debt to fund its lending business.
At the start of 1992, Shawmut was struggling with $1.4 billion of nonperforming assets, and its stock had dipped below $10 per share.
Market Access Limited
The bank had $430 million in total losses in the previous three years, limiting its access to the capital markets and forcing the bank to pay stiff rates.
Now, with improving asset quality and profitability, Mr. Wren is concentrating on raising more from the capital markets at cheaper rates. "It's a lot more fun doing it this way than watching the markets go away from you," said Mr. Wren.
Shawmut's bank note issue this month was done largely to reintroduce investors to the bank, which has no pressing need for the funds, he said.
The five-year issue was priced to yield 13 basis points over the London interbank offered rate. Mr. Wren said the bank may raise an additional $250 million in bank notes issues by the end of the year.
"With a name that is on the mend, we would like to get ourselves back in front of some investors, who haven't seen us for a while," Mr. Wren said.
Shawmut's subordinated debt due in 2003 is quoted at a yield of 90 basis points over Treasuries, about 3 to 8 basis points higher than comparable debt of Bank of Boston and Fleet Financial Group, its two local rivals.
But this is a vast improvement from last May, when Shawmut's debt was quoted at a 170-basis-point yield over Treasuries, according to CS First Boston.
Shawmut's bonds have rallied in the last year because of improving credit quality and earnings. The bank earned $290 million last year. Its total nonperforming loans and foreclosed real estate equaled 2.00% of loans and foreclosed properties at the end of March, compared with 10.76% at the end of 1990.
Loss Provisions on Hold
The bank's reserve for loan losses equaled 223% of its nonperforming assets at the end of March, compared with 65% at the end of 1990.
The bank is so confident about its improving credit quality that it plans to have no loan-loss provisions for the rest of the year, except possibly for future acquisitions, according to the bank's first-quarter earnings report.
"They started the year fresh, with the monkey [of delinquent loans] off their back" said Joseph Labriola, analyst with Kidder, Peabody & Co.
"The bank has really come a long way," said Fred Sherrill, capital markets specialist with CS First Boston Corp. "It has become very healthy in its own right, and has the added patina of being a takeover candidate."
String of Upgrades
Credit ratings have followed the improvement in asset quality. Shawmut earned four ratings upgrades in the last 16 months from Standard & Poor's Corp. and Moody's Investors Service Inc.
And the last upgrades in 1993 pushed Shawmut's subordinated debt ratings out of the junk category - to BBB-minus by S&P and Baa2 by Moody's. Mr. Labriola predicts further improvement in credit ratings this year.
Shawmut's rising credit ratings come at a fortunate time. Mr. Wren wants to refinance part of Shawmut's $9 billion in federal funds and other short-term borrowings to lock in low rates in a rising-rate environment, said Mr. Wren.
Shawmut has started using brokered CDs this year to raise funds with one-, two-, and three-year maturities, he added. Brokered CDs carry cheaper rates than other sources of funding, such as interbank borrowings.
For instance, the bank recently was paying about 4.25% on a one-year CD, about 100 basis points below the rate in the interbank market.
Mr. Wren said pending acquisitions of New Dartmouth Bank of New Hampshire, People's Bancorp of Worcester, Mass., and Gateway Financial Corp. in Connecticut will also allow Shawmut to refinance short-term borrowings with about $5 billion of retail deposits at these banks.
These acquisitions will also help Shawmut stabilize its volume of core deposits, which have fallen for a number of years.
Shawmut has no immediate needs for additional capital, after raising a total of $300 million in common and preferred stock and a like amount of subordinated debt.
The bank's capital ratios are strong, at 8.30% Tier 1 capital and 12.29% Tier 2.
Shawmut is expecting its loan portfolio of $15 billion to increase by roughly $500 million to $750 million this year. The expansion is expected to come mainly from growth in commercial and industrial loans and national corporate lending, Mr. Wren said.
By reducing the amount of money-market-priced loans and increasing its commercial and industrial loans the bank will also boost its interest income, he said.
The bank's plan, Mr. Wren said cheerfully, is "let's try something new and lend some money."