Like Their City, Bridgeport's Banks Are Burdened with Financial Woes
Stand in the center of Bridgeport, Conn., and you're surrounded by ailing banks.
The Federal Deposit Insurance Corp. is soliciting offers for insolvent Citytrust Bancorp and insolvent Mechanics and Farmers Savings Bank, preferably in a package deal.
The state banking commissioner on Thursday forced Lafayette Bank and Trust Co. to enter into a regulatory agreement to tighten its lending standards.
And problems are mounting for the city's largest institution, People's Bank. While not in immediate danger, People's reports that nonperforming assets equal 10% of its total loans -- the same dangerously high ratio reported by Lafayette.
High Rates on CDs
Bridgeport has gained notoriety in recent weeks as the largest city to file for bankruptcy. But in banking circles it has been known as home to some of the country's highest rates on certificates of deposit. Now it may be the site of a rapid-fire banking shakeout.
With the city's fiscal crisis worsening and the regional economy still flailing, the outlook is bleak for local bankers. Analysts say there is a strong possibility that in five years, all the city's big banks will be out-of-town institutions.
"Bridgeport is banking's Beirut," said Gerard Cassidy, an analyst for Tucker, Anthony in Portland, Maine.
Capitalizing on Opportunity
Because of Bridgeport's proximity to New York City, its financial institutions are nevertheless expected to attract interest from a few banks with long-range views.
As an example of the surging interest, 24 banks are said to have attended a recent FDIC meeting in Bridgeport concerning a possible sale of Citytrust and Mechanics and Farmers.
"Banks from outside the area - and from out of the state - have never had a better opportunity to enter into this market," said Thomas White, a Republican alderman for Bridgeport and an assistant vice president of Mechanics and Farmers.
At least one other institution hopes to capitalize on the opportunity. Boston-based UST Corp. is considering selling its $141 million-asset bank in the city, chairman James Sidell said. "It's not the greatest place to be running a bank right now," he said of southern Connecticut.
Hedging on Leaving Town
Other out-of-town banks with Bridgeport offices are waffling. Fleet/Norstar Financial Group Inc. will gain three branches in the city with its early July acquisition of the failed Bank of New England. A Fleet spokesman said Friday that the Rhode Island-based company is still mulling whether to shut them down.
Connecticut National Bank, a unit of Shawmut National Corp., has eight branches in and around the town. Though Shawmut has no plans to move out of Bridgeport, the institution is under severe regulatory pressure with some of the biggest lending troubles in New England.
Part of Bridgeport's problem is the distressed real estate market, among the worst in the nation. According to Torto Wheaton/Coldwell Banker Inc. in Boston, Bridgeport has 2.3 million square feet of commercial real estate space, with 31% vacant. Boston, another deeply troubled real estate center, has a vacancy rate of 17%.
The real estate depression, which has afflicted the city for two years, is making it more difficult for companies to pay back other types of loans.
People's Bank serves as an example of how the troubles have spread. It has $462 million in nonperforming loans. Over 22%, or $173 million, are business loans.
"In fact, business loans at People's have been deteriorating at a faster rate than real estate loans," said Donald Kauth, an analyst for First Albany in Albany, N.Y.
Despite the problems, People's has not moved aggressively to build reserves. Most large New England banks now have reserves equal to 60% of their nonperformers, while People's reserves stand at 20%.
People's will have to take strong medicine in the form of provisions this year, further bitting into its capital, say analysts.
The bright spot for People's is a strong credit card unit. The bank's card portfolio has swollen to $573 million, up 20% from yearend 1990, and 45% from yearend 1989.
"It is our intention to stay an independent and viable organization," said Lawrence Parnell, a spokesman for People's Bank.
"They may be able to make it," Mr. Kauth said. "But it depends on when the recession ends."
In one generally upbeat sign for local institutions, deposit rates have been declining. The downward pressure can be attributed to a regional trend following the government's seizure of Bank of New England.
Once the FDIC finds a buyer for Citytrust, which Bank Rate Monitor still identifies as the top-paying institution in the country, rates will probably fall further.
For its part, Lafayette Bank, a subsidiary of Lafayette American Bancorp, Hamden, Conn., expects to remain independent. Mechanics and Citytrust have declined to comment on the possibility of a federally assisted acquisition, though both have said they are seeking capital.
The sooner the city's banking troubles are resolved the better, according to some local boosters. John Stafstrom, a Bridgeport alderman, said, "We need money for development, and that's not going to happen without credit. It's obviously a problem for this city."
Troubled Banks In a Bankrupt Town Dollars in billions Assets DepositsPeople's $6.71 $5.66
Citytrust 2.05 1.92
Mechanics 1.20 0.95 and Farmers
Lafayette 0.25 0.24
Bank and Trust
Total $10.21 $8.77