Troubled Bank Estimates $450 Million Fourth-Quarter Loss
BOSTON (AP) _ Bank of New England Corp. on Friday estimated it lost up to $450 million in the last three months of 1990, results that analysts said could plunge the bank into insolvency and force a government bailout.
The bank said it had not calculated the final figures for the fourth quarter, but said it expected heavy losses from bad real estate loans that have pounded the company since late 1989.
The announcement scared some depositors. At a bank branch in Lynn north of Boston, people formed long lines to withdraw money.
The projected losses would wipe out Bank of New England’s shareholder equity, or capital, which totaled $255 million Sept. 30, said Gerard Cassidy, an analyst at Tucker Anthony Inc.
He said that would mean ″at the close of business Dec. 31, Bank of New England Corp. would be technically insolvent.″
″Even though the management has been doing a heroic effort to rescue the bank, the economy is stacked against it, the real estate market is stacked against it,″ Cassidy said.
A former vice president of the Bank of England was arrested Friday by the FBI and charged with bank fraud, bank embezzlement and other counts involving more than $1.1 million.
Lewis Donald Shattuck, 42, of Lowell was released on a $100,000 unsecured bond by U.S. Magistrate Lawrence P. Cohen. He will be arraigned Monday before U.S. District Judge David Mazzone.
If convicted on all counts, Shattuck faces a maximum 245 years in prison and fines up to $12.25 million.
According to the indictment, Shattuck was a loan officer at Security National Bank in Lowell, which was acquired by the Bank of New England in 1986. He was responsible for commercial and home lending.
The indictment alleges that from Feb. 26, 1986, to Jan. 13, 1989, Shattuck schemed to defraud the bank by wrongly advancing funds on a number of loans to James J. Jozokos, a Lowell area developer. The funds were loaned in connection with developments in Lowell, Andover and Methuen. Additionally, Shattuck is charged with soliciting kickbacks from Jozokos and another home builder.
Bank of New England estimated its troubled assets climbed by about $500 million in December to more than $3 billion. The bank has $23 billion in total assets.
If the holding company or its subsidiary banks become insolvent ″it could force regulatory action,″ said Ellen Stockdale, a spokeswoman for the U.S. Comptroller of the Currency.
The bank, which lost $123 million in the third quarter, has cut its payroll by several thousand. Based on December figures, the bank estimated it has reduced its monthly operating costs by $17 million.
The real estate slump, which has hurt many banks in the region, has had Bank of New England hanging by a thread for months. The bank has been operating under tight government supervision since last spring, after it reported 1989 losses above $1 billion.
The bank was an aggressive lender during the real estate boom of the mid- 1980s. But the market slump exposed mountains of bad loans.
Bank of New England Chairman Lawrence Fish, who took over last year, said in a statement: ″Clearly, the significant deterioration in the New England real estate market and in the company’s loan portfolio is having a substantial adverse effect upon recovery efforts.″
The government would have several options if it decided to take more forceful steps, which might include injecting the bank with capital or trying to find buyers. But observers said it was highly unlikely the government would actually close the bank’s doors and pay off depositors.