|
|
|
Making Money the Old-Fashioned Way
Having learned the hard lessons of a decade ago, Connecticut banks find stability by getting back to basics
|
Business New Haven
10/28/2002
By: Nancy Barnes
|
Buoyed by consumer loans and a strong secondary housing market, the banking industry in Connecticut is weathering the current economic slowdown well, according to industry observers.
This is in contrast to the high number of failures the industry experienced - 135, or roughly one quarter of all banks in the state - during the severe and protracted recession of 1989-1994. “The industry is definitely above the national average in terms of health,” says Peter M. Gioia, economist for the Connecticut Business and Industry Association (CBIA).
“Banks have become much more sophisticated,” he says. “Certainly, in my observation, they're a lot more cautious and prudent. They still aggressively lend when there's a good market, but they're much more prudent than they were in the past.” Gioia and others point to excessive speculation in real estate as the cause of the industry's 1989-1994 woes. Currently near the top of the list of the largest banks in Connecticut, as measured according to the most recent compilation of in-state deposits by the Federal Deposit Insurance Corp. (FDIC), are People's Bank of Bridgeport, which in June 2001 had a market share of 12.94 percent, and Waterbury-based Webster Bank, whose market share stood at 11.48 percent.
North Carolina-based First Union National Bank - whose deposits nationwide top $1.25 trillion, and which recently merged with the Wachovia Corp. - was fourth with 7.45 percent. New London-based Citizens Bank of Connecticut occupies 3.25 percent share in New Haven.
By far the largest regional player operating in the state is Fleet National. By assets the tenth-largest bank in the country, the Rhode Island-based institution had 23.16 percent of Connecticut's banking market, according to the annual market share report of the FDIC.
A relative newcomer to the state is Banknorth Connecticut, subsidiary of the Banknorth Group Inc., a banking and financial services company headquartered in Portland, Me. Incorporated in 1985 as Peoples Heritage Financial Group, it has evolved into one of New England's largest banks and holds the No. 1 market share for deposits in Maine and New Hampshire.Since entering the Connecticut market in 1999 with the purchase of Glastonbury Bank & Trust, which was a subsidiary of SIS Bank Corp., Banknorth has pursued acquisitions of community banks within the state aggressively.
“When we bought SIS, that was our entry into Connecticut, which until recently was our only bank in Connecticut,” says Brian Arsenault, senior vice president of the bank. Arsenault refers to Connecticut and Massachusetts - another state in which Banknorth has gained a presence - as “generally faster growing markets, and they are, generally speaking, higher-income markets.” Arsenault says that there was “not really much of an opportunity to expand in our northern New England market of Maine, New Hampshire and Vermont. It was only natural for us to look to southern New England to expand.” Banknorth completed its acquisition of Southington Savings Bank in August. That same month, it announced an agreement to acquire American Financial Holdings, parent company of American Savings Bank.
The main office of American Savings is in New Britain, and the bank's 34 branches operate in greater Hartford and also rim the Naugatuck Valley. The completion of these recent acquisitions will push the bank's deposit market share ranking in the state from No. 14 to No. 5.
“The good news is that the banking industry in Connecticut is doing well. The bad news is that the banking industry in Connecticut is doing well,” says William W. Smith Jr., general manager of the New York branch of the Beijing-based Bank of China and a keen observer of credit risk management.
Smith points to this year's Shared National Credit Survey, an annual report by the Federal Reserve, which found that troubled loans comprise 12.6 percent of the $1.9 trillion in syndicated bank loans. Syndicated bank loans are major loans of $20 million or more, and they involve three or more investors.
This year, fueled by losses in the energy and telecommunications sectors, the dollar losses from these broadly held loans hit record levels. Because large Connecticut-based banks such as Hartford National had disappeared by the end of the last recession, the small to mid-sized banks headquartered in Connecticut have been left without significant exposure through syndicated loans to the most troubled sectors of the economy, agree both Smith and Lindsey Pinckham, senior vice president of the Connecticut Bankers Association (CBA).
This year to date, only one bank has failed in Connecticut. That was the Stamford-based Connecticut Bank of Commerce, which closed its doors this summer. Its failure is one of only eight among the more than 9,000 FDIC-insured institutions in 2002 nationwide.
Among larger banks, FleetBoston Financial Corp., holding company for Fleet National, has sustained large losses on syndicated loans in energy and telecommunications as well as suffering losses in Argentina, where it maintains 250 offices.
Plagued by those setbacks, Fleet's third-quarter profit plunged 24 percent over the year-ago period. And even before the company released its quarterly report, U.S. Bancorp analyst Andrew Collins had reduced FleetBoston's earnings per share estimate for 2003 to $2.50 from $2.55. Some in the industry speculate that Fleet's travails might make it an attractive target for a larger entity such as Chicago-based Bank One. Meanwhile, New York-headquartered J. P. Morgan Chase & Co., whose total assets are larger than any bank operating in Connecticut and which maintains branches in Fairfield County, reported a dramatic decline in profits for the third quarter. Its net income fell by 91 percent relative to last year's third quarter, and the company cited deteriorating loans to telecommunications and cable companies as the cause.
Chase has also announced that it will cut its investment banking division by 2,000 employees. Chase operates 32 branches in Connecticut.
Wachovia Corp., which acquired First Union late last year, posted a profit, citing mortgage loans as one cause. One regional bank that has expanded rapidly within the state has limited the size of its major loan portfolio. “We're a middle-market lender,” Banknorth's Arsenault says. “We have a very limited syndicated loan portfolio. We have not sought loans outside our geographic footprint.”
What Connecticut's banking industry has also seen in the last few years is a string of de novo, largely community banks that have sprung up as a result of a merger or acquisition. “When a bank gets merged out of existence, within a two- or three-year window, smaller banks will pop up in those communities where there's a perception there's a need for a local bank,” says the CBA's Pinckham. As an example, Pinckham points to the New Canaan Bank & Trust Co., which was sold in 1999 to Summit Bank Corp. A new Bank of New Canaan was re-chartered in March of this year - with the same chairman and vice chairman as the previous entity, Pinckham says. Other small community banks that have opened in Connecticut since 2000 include the Simsbury Bank & Trust Co., Inc. and the New Haven-based Bank of Southern Connecticut. Regarding commercial customers, Pinckham says most banks in Connecticut aim for the middle or smaller market. He cites as examples a manufacturer with 40 employees or the supermarket with two or three stores. “From a banking profitability issue, [these banks] have to have multiple relationships with one customer,” he says.
CBIA's Gioia says that the lion's share of Connecticut businesses are small businesses. A survey released by the CBIA in early September shows that the small- to mid-sized businesses in Connecticut view Connecticut banks in very positive terms.
Seventy-seven percent of businesses surveyed said they turned to banks for financial resources when their companies need help. And 60 percent described the availability of capital from Connecticut banks as “good” or “excellent.” Gioia says that banks performed better in the survey than any funding source in the state. “Connecticut was becoming a small hotbed of venture-capital activity,” says Gioia, referring to the private equity funding that helped many of the state's fledgling technology industries get off the ground. “That has precipitously fallen in the last few years. For the information and biotechnology industries, that has very unfortunately dried up.” He adds that the Fortune 500 companies which populate the Connecticut landscape may not use banks as immediate sources for capital. He points to Fairfield-based GE Capital Corp., which reorganized into four divisions in August, as an “enormous global player in capital.” Indeed, GE's financial business generates 40 percent of the company's earnings. Likewise, Gioia says, Stamford-based Pitney Bowes Inc. has its own credit corporation.
As part of the revitalization and resurgence of the banking industry in Connecticut in the mid- to late-'90s, Connecticut-based banks are on fairly solid footing, Gioia says. He puts both People's and Webster Banks, who run neck-and-neck near the top of the FDIC market share list, among the in-state bank success stories.
The “Market” Drives Deposits Growth
“It's not happening in People's anymore, and I don't think it's happening anywhere else in the industry,” says James Keegan, first vice-president and growth manager for the greater New Haven market at People's Bank, referring to the use of substandard underwriting guidelines in real estate which caused the banking industry in Connecticut to nearly collapse a decade ago.
Keegan says that People's, which has 36 branches in its New Haven franchise and an 8.96-percent share of the New Haven County deposit market as of June 30, 2001, is doing “very well” in New Haven.
“We've seen a tremendous uptick in mortgage and consumer loans,” Keegan says. He adds that, responding to the plunge in equities markets of the past 18 months, investors have also been moving their money from the stock markets to certificates of deposits and savings accounts.
“Certainly, what's helping the market is the low interest rate,” he adds. Moreover, “I don't think that we're going to see significant rate increases in the short term.”
Keegan points out that since the early 1990s the banks have gotten “a lot smarter. I think we learned a lot.” At present, he says, no bank would lend the full 100-percent value of a house. Ten years ago, deflation in the housing market diminished the assets of customers who had borrowed fully against the house that they owned.
Webster Bank senior vice president Jennifer Ahern says that her Waterbury-based bank, has 31 branches in its franchise, has seen “a pretty healthy increase in deposits” over the last two years.
Ahern says the average annualized deposit increase throughout the greater New Haven market is three percent, although the suburban communities have averaged about 15-percent growth. For example, Webster's Wallingford branch, she says, has seen a deposit growth of 38 percent over the past year.
Like Keegan, Ahern says that consumers' moving their money from the stock market to banks is a primary reason for the vigorous New Haven market.
Fleet,” says Jim Schepker, spokesperson for FleetBoston. At $1.9 billion in deposits, Fleet has a 15.2 percent share in the market - second-largest in the New Haven area.
Schepker says his bank's strength in earnings in its New Haven franchise is the consumer and small business market. He adds that, “Certainly, the real estate market has been very vibrant this year.”
Schepker terms Fleet's presence in the New Haven area “stable,” noting that Fleet has had 40 branches in greater New Haven for the past two years. “Our growth is really coming from cross-selling to our customer base,” he says.
Even Webster Bank's year-old Emerging Growth and Technology Group is doing well, according to senior vice president and group manager John E. Rossi. “The biotechnology firms are not suffering anywhere near to the same degree that the telecommunications firms are,” Rossi says.
In the city of New Haven, hometown New Haven Savings Bank holds 26 percent of the city's market share. Spokesman Paul McCraven credits that to the bank's community banking model and the bank's status as the “hometown bank.”
McCraven notes that NHSB deposits grew by 108 percent in the bank for the first quarter of 2003 (April through June) compared to the last quarter of 2002, and that deposits grew by 30 percent over the first quarter one year ago.
|
Go FirstGo PreviousGo
NextGo LastGo
to Index
|
|
