BOSTON -- Each week, Walter Connolly would survey the numbers from his banking empire, 450 branches that stretched from the top to the bottom of New England.
If the numbers didn't look right -- if a bank had lost even a bit of market share -- Connolly would get the bank's president on the phone and demand to know what had happened. No matter what he was told, he had the same answer: "Grow it, grow it."
It was a simple philosophy, but it served Connolly well during the 1980s. It allowed him, as chairman and chief executive, to transform Bank of New England Corp. from an ordinary bank into the second-largest bank holding company in the region. When the economy was expanding, it enabled Connolly to buy more banks, pay higher prices and make more loans than anyone else. Had the boom continued, Connolly today might be head of the biggest banking company in New England.
Unfortunately for Connolly, the economy collapsed in 1989, taking the company with it. It quickly overtook its rivals in a race that no one wants to win -- the competition for the most bad loans and the biggest losses.
"The Bank of New England lent too much money too aggressively," Lawrence Fish told reporters Sunday night, in a brief but accurate post-mortem delivered just hours after the failed company's three subsidiary banks had to be rescued by the federal government.
Fish became chairman, replacing Connolly last March, but it was too late. The sinking economy made it impossible for Fish to revive the company, despite his best efforts. "It proved too much," said a tired Fish. "You can only push a rock uphill so far."
It was the end. Bank of New England Corp. was seized by federal regulators Sunday night, and the company filed for liquidation under Chapter 7 of the U.S. bankruptcy code Monday. The three banks owned by the company -- its Boston-based flagship, Bank of New England, Connecticut Bank & Trust Co. of Hartford and Maine National Bank of Portland, Maine -- are now operating under federal control.
Sometimes the story of a company's collapse is a complicated tale involving the interplay of many personalities and economic forces. That is not the case with Bank New England. Its rise and fall is a remarkably simple story of one man whose style was perfect for one era but disastrous for another. Walter Connolly was hardly the only person in Massachusetts who caught "'80s fever," the feeling that the good times would go on forever. His case was just worse than practically anyone else's in the banking business.
Connolly hasn't been talking to the press for quite a while, but friends say he hasn't changed much. "I don't see a lot of analysis going on" within him, said one friend.
Connolly came to Boston in 1983 with an impressive record. He had worked his way up in Hartford at Connecticut Bank & Trust Co. He was known as an aggressive and innovative banker, qualities that were in demand. Interest rates had been deregulated. Barriers that limited a bank's ability to open new branches were being discarded. Even the long-standing ban on interstate banking was falling by the wayside. Connolly thrived in this wide-open environment, easily besting more traditional rivals.
His skills also proved too formidable for the executives at the Bank of New England. In 1982, the Boston bank initiated merger talks with Connecticut Bank & Trust, hoping to create a regional giant. The merger was billed as the combination of equals, but Connolly quickly established himself as the first among equals. Bank of New England became Connolly's bank, and its corporate culture reflected his strengths and weaknesses.
"The whole culture was one of growth," said Donald J. Kauth, an analyst with First Albany Corp. in New York.
Connolly had a few simple rules. "The market is share driven," he would tell his underlings. "Get the share and the profits will follow." If someone complained, suggesting that the company was going too far, Connolly would dismiss him in a moment. "You are not seeing the big picture here," he would say. "You have to take what the market gives you."
What the market gave Connolly was Conifer Group. Based in Worcester, Mass., Conifer was a far-flung banking chain with $4 billion in assets that stretched across Massachusetts. It was an impressive prize in 1986, one that could catapult the Bank of New England Corp. to yet a higher plateau. "Size was success to Walter," said one colleague. "He wanted to retire as the chairman of the biggest bank in Boston."
Connolly won Conifer by outbidding Providence's Fleet/Norstar Financial Group. Fleet bid $570 million, a hefty price even by the standards of the day. Bank of New England bid $656 million, a price that bordered on the outrageous.
To make the acquisition pay off, Bank of New England had to grow dramatically. But it set off on that course lacking one critical ingredient: controls. The company in the mid-1980s resembled a medieval kingdom in which the central administration exercised little control over the distant provinces. Each piece of the company's empire made its own decisions on lending and that was a prescription for trouble.
Bank of New England's quest for growth led to a number of separate disasters, including:
A series of loans totaling $150 million to William Stoecker and his Rust Belt conglomerate. In 1988, Stoecker stopped paying his bills and filed for bankruptcy, leaving the bank with $65 million in unrecoverable loans. "We misjudged the character of the borrower," said Connolly afterward.
The loss suffered after stepping in to finance a giant condominium project in East Cambridge, Mass., called Thomas Graves' Landing when competitor State Street Bank found it too risky. A good part of the money was lost when the real estate market collapsed. "In hindsight I suppose one can say both we and the Bank of New England were too aggressive," said developer Arthur Klipfel III.
. Extending $10 million in credit to Mortgage Corp. of New England, a company that makes second mortgages to people who could not obtain financing elsewhere, usually at interest rates of 15 percent to 20 percent. It is a risky business in the best of times. By 1989, times in New England were not the best. In a recent court filing, Bank of New England said Mortgage Corp. still owes it more than $7 million. As one bankruptcy lawyer put it, "It doesn't take a genius to lend money. What takes smarts is collecting the money once you've lent it out."
The disasters caught up to Connolly on Dec. 7, 1989. Federal regulators, who had spent months looking through the company's books, called Connolly into a room and told him his company's very survival was in question.
The regulators had a second message: They did not believe Connolly was the man who could lead Bank of New England Corp. back to health. A week later he was fired.
The man picked to lead the rescue mission was Fish, 46, who had been a top executive at Bank of Boston Corp. He served a brief stint at a West Coast thrift at the end of the decade, but he was ready for a new challenge. "I am an optimist about the New England economy," Fish said in his maiden interview last March. "I don't believe this area is in for a long period of recession. We have a lot going for us."
Fish had no choice but to be optimistic. He understood as well as anyone that the company's banks -- particularly Bank of New England -- had an enormous number of problem loans, which acted as a drag on earnings. Fish needed an economic recovery to move some of those loans back into the performing category. At the very least he needed the nonperforming loans -- those not earning interest -- to stop growing.
Since the economy's fate was beyond his control, Fish worked on the things he could control. He slashed the payroll by one-third, eliminating more than 5,000 jobs. He sold off assets and restricted lending. His goal was simple: Get the company down to a size at which it could survive. "I think Larry Fish performed as heroically as anyone could," said Gerald S. Cassidy, an analyst at Tucker, Anthony, in Maine.
In this case, great was not good enough. The New England economy refused to cooperate with Fish's plans. The jobless rate continued to climb throughout 1990, pushing more and more borrowers into financial trouble. Even blue-chip clients stopped paying their loans late in the year. Instead of shrinking, nonperforming loans grew by $500 million in the final quarter of the year. When news came out Friday that the company had lost $450 million in the quarter, the struggle for survival was over.