Reeling from the recession, Northeast Bancorp in Connecticut has put itself up for sale, according to sources.
Prospective buyers include Bank of Boston Corp., Chase Manhattan Corp., Fleet Financial Group, and First Fidelity Bancorp. Those companies have either begun reviewing Northeast's books or plan to, the sources said.
It's unclear how much Northeast, with $3.1 billion in assets, might fetch. The company's book value is $101.2 million, but its shares are trading at a deep discount, putting its market value at about $56.3 million.
In fact, a sale of Northeast is by no means assured. The company, based in Stamford, is experiencing severe financial problems, and observers say it's conceivable that it could eventually be seized by regulators.
Potential suitors may choose to wait until that happens, rather than risk buying it without some form of government protection.
Still, as one of Connecticut's, biggest banking companies, Northeast could be an attractive target. It has 69 branches in the Hartford, New Haven, and New London areas and the affluent New York City suburbs in Fairfield County. In Fairfield and New Haven counties it is among the top three banks in deposit market share.
With the exception of Fleet and Chase, none of the interested banks have more than a token presence in Fairfield County.
A spokesman for Northeast declined to comment Friday about a possible sale, but he said that "given our current capital structure, this bank is in no way, shape, or form about to fail."
Officials at Goldman, Sachs & Co., which is handling the sale negotiations, declined to comment, as did all the banks cited as potential suitors.
Northeast's management decided to sell the company in recent weeks after concluding that the Connecticut economy would not improve anytime soon, according to sources.
The company has been racking up losses for most of the past two years. Last week regulators forced it to restate its second-quarter results to reflect a $67 million loss, rather than the $39.9 million it originally reported.
Downward Spiral Continues
Northeast shareholders almost assuredly would welcome a deal. The company's stock stood at $7.75 a share Friday,, down from $62.50 a share in early 1990.
It had been trading around $12 a share for most of this year, but Northeast's second-quarter loss - compounded by a restatement - has driven the stock down sharply. The company has a book value of about $14 a share.
A once highly profitable banking company, Northeast was slated to be acquired by Bank of New York Co. at 2.5 times book value under a stakeout agreement struck during the 1980s, anticipating Connecticut laws that would open its borders.
The deal fell apart in 1990 when Bank of New York balked at the purchase price. A suit is pending. It is understood that Bank of New York is currently not interested in acquiring Northeast. A Bank of New York spokesman declined to comment.
By almost any measure, Northeast is in dire financial condition. Eleven percent company's assets are classified as nonperforming, and its equity capital is a mere 3% of assets - well below regulatory minimums.
What's more, Northeast's problems don't show clear signs of abating. About 85% of its bad assets are in real estate, and property values in Connecticut continue to decline.
Northeast is operating under a memorandum of understanding with regulators that requires it to bring capital levels up to 5.25% by yearend. The company said it would bring the ratio up to 4.20% at the end of the third quarter by selling assets.
Toward that goal, Northeast last week announced the closing of the sale of its $107 million credit card portfolio, for approximately $18 million, to a subsidiary of Household International.
In terms of building market share, Northeast would be a boon to any company interested in expanding its Connecticut presence.
Chase, which has about $2.3 billion in assets in Connecticut, would become one of the players in the state. It has repeatedly said it wants to expand in the region.
Bank of Boston, which is making a push to attract more retail and small business customers, would also benefit handsomely from owning Northeast. It has a minimal presence in Fairfield County and it, too, has said it wants to expand in Connecticut.
Northeast would give First Fidelity a big suburban New York presence. It already is among the top players in the northern New Jersey banking market and has said it wants to be a big player in New York's suburbs.
For Fleet, acquiring Northeast would enable it to enhance the already sizable presence it gained when it acquired the failed Bank of New England last year.