Bank of New England Reports $1.11 Billion Loss
BOSTON (AP) _ Bank of New England Corp., which went from profits to steep losses late last year, is reviewing whether it should have made bigger provisions against bad loans earlier in 1989.
″I really feel that as we went through 1989, we weren’t dealing with a full deck,″ said James Moynihan, senior vice president at Advest Inc. in Boston.
Bank of New England reported Thursday its 1989 losses were worse than expected at $1.11 billion. The company also said it was reviewing how its quarterly loan-loss provisions were allocated, indicating the possibility that it should have taken bigger provisions earlier in the year when the bank was still reporting profits.
″I don’t think that we could have a loss like that and not say there were mistakes and misjudgments,″ said Marcia Ryan, a bank spokeswoman.
Analysts said the review of loan-loss provisions indicates the bank might have misstated its financial condition in previous quarters, which could open the bank to more lawsuits. The bank already faces several lawsuits from shareholders who claim they were misled by the bank.
Bank of New England, which has had to boost its reserves against bad real estate loans, estimated earlier this year its l989 losses would be $1.05 billion because it was boosting its reserves against credit losses to $1.65 billion.
Other banks also have suffered financial ills because of the region’s slumping real estate market, but analysts say Bank of New England has received some of the deepest wounds because it was an aggressive lender during a construction boom in the mid-1980s.
Yet Bank of New England’s serious troubles did not become apparent until late last year. For the first three quarters of 1989, the bank said it had earned more than $120 million.
In its statement Thursday, the company said it was not reporting its fourth quarter results yet because it was ″in the process of reviewing the provision for loan losses to determine how it should be allocated among the 1989 quarters.″
Ryan said the bank ″possibly″ could increase provisions in the previous quarters but no decision has been made. The statement indicated that overall provisions for 1989 would not change.
Analysts said the bank’s statement indicated the company and its auditors were trying to determine whether the first three quarters should have contained larger provisions against bad loans.
″They are going to put 1989 back together again the way it should have been,″ Moynihan said.
Gerard Cassidy, an analyst with Tucker Anthony Inc., said Bank of New England had plenty of signs earlier in the year that its loan portfolio could sour. The economy had already started its downturn, and Bank of Boston Corp., the region’s largest bank, reported a record $125 million loss in the third quarter.
″It tells you someone was asleep at the switch,″ Cassidy said.
″Needless to say, in this type of situation there will be lawsuits″ from shareholders, he said.
The $1.11 billion loss for the year, which translated to $16.11 a share, compared with earnings of $281.7 million, or $4.06 a share, in 1988.
As of Dec. 31, 1988, the bank had $32.2 billion in assets, but that number shrunk to $26.1 billion by Feb. 15, with much of the decline coming since Jan. 1, the bank said.
The bank has been trying to sell $6 billion in assets to raise cash, and its primary capital ratio improved to 8.6 percent on Feb. 15, compared with 7.1 percent at year’s end.
″The numbers we reported today were in line with our January estimate,″ H. Ridgely Bullock, the bank’s interim chairman, said in a statement. ″In the near term, we are proceeding in an orderly fashion to reduce overhead as a part of our downsizing program.″
″We are presently developing a longer term strategic plan to improve operations and lead the company on a road to profitability,″ he said.
The bank said last week it expected to lay off about 2,000 employees, although the specific details were not yet determined.
The bank also said earlier this year that it planned to enter a consent order with the federal government to detail what steps it would take to improve its financial condition, but that order has not yet been disclosed.