It’s a cliché in plenty of action movies: One of the characters, a veteran cop, is just days away from retirement before one final case – the biggest, baddest of his career – derails his plans. Janet Bruno might be able to relate. After 16 years as CEO of Marlborough Co-operative Bank, retirement was around the corner. But during the dark and fearful days of September 2008, she got a new, and rather dubious, job – as CEO of troubled Butler Bank.
Eighteen months later, Butler became the first Massachusetts bank failure in 16 years, and was immediately sold to Connecticut’s People’s United Bank, with help from the FDIC.
It was a tough situation from the get-go, but Bruno said she went in with her eyes open.
“I knew what I was in for,” she told Banker & Tradesman. “Maybe I didn’t know quite the extent of it.”
Butler was damaged, that much was clear. Construction lending was its biggest cash cow, and those loans had grown significantly in 2006 and 2007, according to FDIC data. Butler, which had $235.7 million in assets, ended 2007 with $117.4 million in construction loans.
By the end of 2008, nonaccrual loans, those well past 90 days overdue, had jumped from $4.4 million to $50.7 million.
Honesty The Best Policy
Marlborough Co-operative and Butler Bank shared a mutual holding company beginning in 2007. They merged in September 2008. Longtime Butler CEO John H. Pearson stepped down, and Bruno was called on to put her retirement plans on hold.
And so far, she’s earning praise for the work. Butler failed, but its losses are minor compared to many other failed institutions. The FDIC will lose $23 million to cover Butler’s $268 million in assets. That’s an 8.6 percent ratio – the median for other failed banks nationwide is almost 30 percent.
The process was managed well, said Peter Conrad, president and CEO of the Cooperative Central Bank, a cash reserve for cooperative banks.
As she was taking over, many speculators were predicting a quick death for Butler, Conrad said. But regulators gave her team ample time to sort out its loan portfolio as best it could, largely because Bruno was forthright about the bank’s prospects.
It’s not unheard of for bankers under pressure to keep troubling details from regulators in hopes of buying time, Conrad said. But Bruno kept them in the loop and faced each bit of bad news squarely – regulators respected that, and gave her more space to work, according to Conrad.
“She shared that information from day one with the Division of Banks, with the FDIC, and with me,” he said. “Nobody thought she was trying to hide from them, and that had to have an impact on their willingness to play along with her.”
What’s more, she kept customers calm despite the departure of longtime CEO Pearson, who had been the face of the bank, Conrad said.
Could Have Been Worse
As for the troubled loan portfolio, Bruno brought in a team of experts with experience in dealing with loan workouts, said Stanley V. Ragalevsky, partner with K&L Gates law firm. The group’s efforts brought organization and clarity to the troubled lending portfolio, and that made it easier to deal with.
At its worst, Butler looked like it was going to have an FDIC loss ratio of 40 percent to 50 percent, Ragalevsky said, instead of the 8.6 percent it ended up with. That, he said, is a victory for the team’s hard work.
Bruno spent much of her time shopping Butler to nearby banks, looking to find an acquirer. That proved fruitless.
“The loan portfolio was difficult, at best,” she said.
Instead, banks had a greater incentive to wait until the FDIC shut the bank down. Regulators have agreed to shoulder 80 percent of Butler’s losses, so buyer People’s United will only have to shoulder the leftover 20 percent.
People’s United officials say Bruno will stay on to help with the transition, but Bruno doesn’t know what she’ll do afterwards. Retire, possibly.
Either way, she said, the last 18 months have gone well, all things considered.
“Even though it had to happen the way that it did, people are safe, deposits are safe,” she said. “I’m very proud of what my team and I have done to get to this point.”
