Edward A. Hjerpe III took the helm of the Federal Home Loan Bank of Boston during troubled times this summer, but at least he didn’t exactly go in cold.
The FHLBB is his old stomping ground – he started there as head of the financial research and economics department, rising to become CFO. He struck out into the field in 1997, working for FirstFed America Bancorp, Webster Bank and briefly for Strata Bank.
His return, says FHLBB CFO Frank Nitkiewicz – who was hired by Hjerpe years ago – has created a “very motivated atmosphere” in the bank, with both Hjepre and his new employees enthusiastic about his return.
His familiarity with the bank has eased over the transition from former CEO Michael Jessee, who announced his retirement last winter. But Hjerpe’s return to familiar faces has also put him in the thick of the bank’s troubles.
Billions In Alt-As
The FHLBB’s second quarter numbers showed a loss of $4.2 million, compared to net income of $52.5 million last year for the same period. The quarterly report noted gross unrealized losses of $1 billion on Alt-A mortgage-backed securities, which are similar to subprime loans and have performed poorly in the economic downturn.
In view of previous quarters, however, the second quarter represents a move in the right direction: For the first quarter this year, for example, the bank had a $83.4 million loss, largely related to expected losses on the private-label mortgage-backed securities – in that view, $4.2 million is an improvement.
Much depends on the housing market, he said. If it improves, those securities will perform well and make life easier for the bank.
But, “The good news is, from my perspective, the core operating business is strong,” he said. As an $80 billion cooperative, the FHLBB’s key task is to provide liquidity for its 460 member institutions, and it typically makes conservative investments. Hjerpe noted that the federal home loan banking system stepped up to make billions on loans over the past year when member institutions needed credit.
For now, Hjerpe is principally concerned with the practical tasks at hand: building up earnings and retained earnings.
His first actions have involved a scrub-through of the bank’s entire operations – looking at products to see what else the bank might offer, trying to get more banks in the six-state region to become members, going through the investment portfolio to consider other kinds of investment strategies – all of which will help grow the business and build retained earnings to offset the impact of any portfolio losses.
Hjerpe also looks to make the bank operate more efficiently, and trim costs that way.
“We should be doing these things, anyway, frankly, on behalf of our customer-stockholders.”
The ‘Going Home Aspect’
Hjerpe’s current and former coworkers are optimistic about his assumption of the head role at the bank.
“Ed’s ideally suited for this responsibility,” said Jim Smith, CEO of Webster Bank and Hjerpe’s former boss, who served on the FHLBB’s board while Hjerpe was CFO.
Smith says Hjerpe, who holds a Ph.D. in economics, had vast expertise on derivatives, securities, risk – the major facets of the financial system.
But Hjerpe, a Medway native, wasn’t just an economics wonk. He had leadership abilities and empathy for others, Smith said, and those qualities served him well when he ventured out into working for banks themselves.
Hjerpe worked at FirstFed America Bancorp as CFO and COO until it was bought by Webster. After that, he was in charge of Webster’s Massachusetts and Rhode Island operations, Smith said.
“He went outside of the [home loan bank] system and broadened his capabilities, and then came back as a leader,” Smith said. “There’s almost like a going home aspect to this.”
Hjerpe most recently spent time as Strata Bank’s interim CEO, and guided it toward its eventual sale to Middlesex Savings Bank, which was completed this year. Now he likes to point out that he’s been in executive roles in three different banks of varying sizes, and thus has been in the same position as many of the FHLBB’s members.
Nitkiewicz recalls Hjerpe had an academic approach that was “heavily tempered by pragmatism” and understood the business aspect of the bank.
His time as a banker should also be a reassurance to the FHLBB’s members: “It gives him and anybody who has been in that role a unique perspective on what the needs of our members are,” Nitkiewicz said.
