Bank of New England Selling Rhode Island Subsidiary
BOSTON (AP) _ A subsidiary of a Scottish banking group agreed to buy most of Bank of New England Corp.’s Rhode Island operation for $75 million Tuesday, buying a little hope for the troubled bank’s prospects.
The deal will sell most of the best of Bank of New England-Old Colony assets to the Citizens Financial Group of Providence, R.I. Citizens is a subsidiary of The Royal Bank of Scotland Group, a financial services holding company.
Selling off its Rhode Island interest is the last major move in Bank of New England’s efforts to boost its capital and restructure its operation.
″This sale virtually completes our program to downsize the company and to concentrate our efforts on our strong franchises in Connecticut, Maine and Massachusetts,″ BNE chairman and chief officer Lawrence K. Fish said in a prepared statement.
″It happens to fit our franchise well,″ said Kenneth E. Hogberg, chief financial officer of Citizens, in an interview from Providence. ″We think the franchise will continue to carry a lot of value.″
With the disposal of the Rhode Island subsidiary, Bank of New England will be left with three major subsidiaries: Maine National Bank, Connecticut Bank and Trust and Bank of New England. They employ about 14,000 people, a bank spokesman said.
The bank has been shedding assets and its work force since it came under increased government scrutiny when the region’s economy began to slide and the real estate market exposed piles of bad loans.
The bank lost more than $1 billion in 1989. It has lost $46.6 million in the first quarter that ended March 31 and more than $30 million in the second quarter of this year.
Analysts said the sale of Old Colony is good for Bank of New England, but can’t be looked upon as the transaction that will start the company’s turnaround.
More important will be reducing its non-performing assets, the analysts said. That in turn depends on whether the New England economy recovers soon.
″Picture a guy crossing a desert, dying, and they find a small oasis with a little bit of water,″ Don J. Kauth, an analyst at First Albany Corp. said of the sale of Old Colony. ″The question is, will they make the rest of the way across the desert? It depends on how wide the desert is.
″Unless the economy improves, the Bank of New England is going to run out of capital before they run out of non-performing assets,″ Kauth said.
Bank of New England bought the 70-year-old former Old Colony-Newport National Bank in 1986.
Under the agreement, Citizens will acquire $600 million of selected Old Colony assets while Bank of New England keeps $550 million in assets. It will also acquire more than $900 million in deposits while Bank of New England keeps about $250 million in deposits, liabilities and capital.
Also under the terms, Citizens will acquire and operate the Old Colony branch network as part of Citizens Bank, while Bank of New England keeps the BancNew England Mortgage Co., a subsidiary of Old Colony, based in East Providence.
The deal would increase Citizens’ assets to $3.7 billion, making it Rhode Island’s second biggest bank.
The Bank of New England fell victim to the rumor mill last week, its stock falling 62 1/2 cents a share to $1 Thursday after a congressional candidate erroneously suggested federal regulators had recommended a takeover of the bank.
The Comptroller of the Currency in Washington, the chief regulator for the Bank of New England, as well as the bank denied and denounced the rumors.
Confidence apparently restored, the bank’s stock rose again Friday and closed at $2.12 1/2 a share.
In afternoon trading Tuesday on the New York Stock Exchange, Bank of New England was selling for $1.87 1/2 a share.