Dominated as it is by struggling, absentee owners, the Bay State’s fragile banking sector could pose an unexpected obstacle to recovery.
Yes, the beleaguered banking industry is a problem around the country, with skittish financial institutions hanging onto their capital for dear life as everyone from would-be entrepreneurs to major companies go begging for money.
But here in Massachusetts, we face a couple added problems when it comes to our banks.
The trio of giant, out-of-state banks that now dominate the local industry also happen to be among the financial institutions hardest hit right amid this nasty downturn – Sovereign, Bank of America and Citizens Financial Group.
Sovereign and Citizens are leaning on some deep-pocketed overseas parents, while Bank of America must raise tens of billions in new capital in the wake of the recent “stress tests” given by the feds.
But the problem goes beyond the balance sheets of these wounded, but still powerful, financial giants.
Once a major banking headquarters, Boston has become a banking backwater, a second or third city for financial institutions based in other regions or states.
That local touch, frankly, is needed now more than ever.
There’s no local banking chief ready to lead the charge to get Boston’s Filene’s redevelopment back on track or prevent another big tower like the Hancock from sliding into foreclosure.
“If the 22-year-old credit analyst sitting in Charlotte, N.C. tries to make sense of what deals make sense and what doesn’t, it’s much easier to say no to everybody,” said Larry DiCara, a top Hub attorney, former city councilor and chairman of the Boston Municipal Research Bureau. “If you don’t do a lot of lending, you can’t make any mistakes – and you can’t get fired.”
Bleak And Bleary
If you want an example of the big difference a few, high-powered local bankers can make, just look back to the 1970s.
That was certainly a grim time for the Hub, with the city, under then-Mayor Kevin White, struggling to emerge from decades as a grimy backwater.
If Boston was known for anything then, it was for busing riots, not vibrant new developments.
It was against this backdrop that a bold young developer named Jim Rouse found himself struggling to finance plans to redevelop then-moribund Faneuil Hall into the centerpiece of a lively new urban shopping bazaar.
A New York bank had agreed to fork over part of the money needed, but still left Rouse millions short.
It was then that an executive with the then-First National Bank of Boston stepped into the void, selling shares in the project for anywhere from $500,000 to $1 million apiece, DiCara recalls.
A similar situation confronts the Hub today, he notes. Plans to redevelop the Filene’s complex have stalled, leaving a bombed-out shell in the heart of the city’s’ Downtown Crossing shopping district.
What’s missing this time around, DiCara mused at a recent meeting of top officials at the Boston Municipal Research Bureau, is a local banker to take the lead in helping raise the hundreds of millions needed to save this megaproject.
Of course, it was not so long ago that some were smugly dismissing the need to have banks and other major companies headquartered in Boston.
I remember listening in amazement at a downtown luncheon last spring when a top local politician and other civic leaders opined that Boston hadn’t suffered much at all in losing its status as a headquarters city.
Granted, the discussion included a range of companies once headquartered here, and not just the old FleetBoston, swallowed up by Charlotte-based behemoth Bank of America a few years ago.
‘When Banking Was Boring’
While they might be based elsewhere, the out-of-town corporations and banks now dominating the city were all great partners, doling out the cash to various charitable endeavors and city initiatives, the wise men concluded.
After all, those were the days when banking was boring, an era of easy money when anyone with a pulse could get a loan and the nation’s top financial institutions seemed unshakeable.
But that confidence is long gone. And the big out-of-state banks that appeared to have so effortlessly filled the void are now faced with some major challenges of their own.
Rhode Island-based Citizens Bank wrote off $451 million in bad loans during the first quarter, and set aside another $608 million to cover future losses.
The Royal Bank of Scotland, Citizens’ overseas parent, recently injected $300 million in capital to shore up its American subsidiary.
Pennsylvania-based Sovereign Bancorp was hit with an even bigger, $817 million loss during the first three months of the year. The bank, which is now owned by Spanish financial giant Banco Santander, also salted away another $505 million to cover additional loan losses.
The region’s reigning bank heavyweight, Bank of America, also has its share of challenges. The bank emerged from the recent federal stress tests with the news it will need to raise another $33.9 billion in capital to protect against future losses.
So the big three of Bay State banking, if not in survival mode, have some major balance sheet work to do over the coming months.
Of course, that’s just as the Massachusetts economy is likely to hit bottom and start groping up the slopes to recovery.
“As a resident and taxpayer in the state, it is of great concern to me,” said Gerard Nadeau, executive vice president Rockland Trust, of the lack of any locally based major bank. “It’s great from a competitive perspective, but we can’t fill that void entirely.”
Local HQ Would Be A Big Plus
Now don’t get me wrong, for I am not saying business loans would be falling from the sky had Boston found a way to remain a major bank headquarters city.
Credit was hardly easy to come by back in the tough times of the early ’90s, when Boston was the headquarters of a number of major banks, one of which actually went under.
But it’s hard to argue it would not be a plus to have at least one major bank headquartered here whose top executives can be found on a local golf course or serving on the local PTA.
It is often in such informal settings that the next loan or business deal – or proposal to save a major endeavor like the struggling Filene’s redevelopment – is hammered out.
Just ask Hub tower developer Dean Stratouly if there is a difference dealing with a locally headquartered bank as opposed to a branch of a bank based elsewhere.
“When you are dealing with a division as opposed to the headquarters, the amount of attention, support and business development is far less,” he said.
For the sake of our local economy, then, let’s just hope all the naysayers who shrugged off the fact that Boston is no longer home to a major bank were right.
Because if they are not, we all could be in for one very long recovery.
