FleetBoston Financial Corporation

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FleetBoston Financial Corporation

One Federal Street
Boston, Massachusetts 02110-2010
U.S.A.
Telephone: (617) 346-4000
Fax: (617) 434-6943
Web site: http://www.fleetbankbostonmerger.com

Public Company
Incorporated: 1791 as Providence Bank
Employees: 59,200
Total Assets: $190.69 billion (1999)
Stock Exchanges: New York
Ticker Symbol: FLT
NAIC: 551111 Offices of Bank Holding Companies; 522110 Commercial Banking; 522210 Credit Card Issuing; 522291 Consumer Lending; 522292 Real Estate Credit; 522293 International Trade Financing; 523110 Investment Banking and Securities Dealing; 523120 Securities Brokerage; 523910 Miscellaneous Intermediation; 523920 Portfolio Management; 523930 Investment Advice; 524113 Direct Life Insurance Carriers

FleetBoston Financial Corporation is the eighth largest bank in the United States and the largest in New England, with more than 1,250 branches and 3,500 ATM machines stretching from Maine to Pennsylvania. In addition to serving households and small businesses through its retail banking operations, the company offers a wide variety of financial services to both individuals and institutions throughout the United States and in Latin America. FleetBoston ranks as the number three commercial and industrial lender in the United States, is one of the top five providers of cash management services, and is a leading middle market lender. Other holdings include FleetBoston Robertson Stephens, a full-service investment bank, and Quick & Reilly, a leading discount brokerage firm. Other services and product offerings include mutual funds, insurance and annuities, credit cards, leasing, retirement planning, estate settlement, asset management, and venture capital. In Latin America, operating as BankBoston, the company has strong positions in Argentina, Brazil, and Chile, serving top companies and high-net-worth consumers. This financial powerhouse is the result of the 1999 merger of two of the oldest banks in the United States, Fleet Financial Group, Inc., whose earliest predecessor was the 1791-founded Providence Bank, and BankBoston Corporation, which traced its roots to the 1784 founding of Massachusetts Bank.

The Development of Fleet’s Predecessors

Fleet Financial Group was formed over a period of more than 200 years through the amalgamation of dozens of smaller local banks and savings institutions. As a result, the company has an extremely complex but rich heritage. The earliest predecessor of the Fleet companies was Providence Bank, which was established in Rhode Island in 1791 by a shipping merchant and former Congressional representative named John Brown. He had tried to found a bank seven years before, in the waning years of the Revolutionary War, but failed to inspire the trust of investors. As it was, Providence Bank was only the fifth bank to be established in the newly created United States of America.

In 1803, Elkanah Watson, who had been an apprentice in the shipping business under Brown, established his own financial institution, the State Bank of Albany. Watson had served as a soldier under George Washington and as an emissary to Benjamin Franklin in France. Rather than pursue politics, Watson built on his experience with Brown’s shipping company and moved to Holland, where he studied the Dutch canal system. In 1792, after having returned to America, Watson organized a number of inland water transportation systems, including the Western Inland Lock Navigation Company. He continued in these ventures for another 11 years, at which time he reported having a dream about opening a bank. The next morning Watson immediately began drawing up papers to establish the State Bank of Albany. Watson headed the bank until his death in 1842. Throughout its history, the State Bank of Albany financed transportation projects, including the formation of the New York Central Railroad Company, the construction of the Great Western Turnpike (now U.S. Route 20), and a portion of the Erie Canal.

A third predecessor of Fleet Financial was established in 1886 by Samuel Pomeroy Colt, a young man who had been raised by his uncle and namesake, Samuel Colt, inventor of the Colt revolver. After earning his law degree, the younger Colt began a successful career in Rhode Island state politics. He founded the Industrial Trust Company in 1886 as a vehicle for his commercial activities, which included an interest in the National India Rubber Company. While in Europe some years later, Colt noted the European system of branch banking, a system that enabled a bank to conduct business in several areas of a city or county. He brought this idea back to Rhode Island and between 1900 and 1908 purchased 29 smaller banks throughout Providence, with the aim of converting them into branches of his Industrial Trust Company.

Thus, by the early 20th century, the Providence National Bank, the State Bank of Albany, and the Industrial Trust Company had been established and were prospering. All three institutions survived the Panic of 1907, a disastrous run on banks that virtually collapsed the American banking system. Colt’s Industrial Trust was the first of the three, and the first bank in Rhode Island, to join the new Federal Reserve system. The Providence Bank, which became a national bank in 1865, recorded its first acquisition in 1926, when it took over the operations of the Merchants National Bank, then the largest financial institution in Rhode Island.

The banks plunged into dire straits in 1929, after the stock market crashed. The sequence of bankruptcies destroyed companies and banks alike and continued despite federal seizure of bank assets. Fortunately, the economies of Rhode Island and upstate New York were primarily—and robustly—maritime and agrarian, enabling the banks to remain solvent. In fact, the State Bank of Albany succeeded in growing during this difficult period by taking over a number of troubled competitors.

The banks remained stable throughout the 1930s, but were quickly drawn into a war mobilization economy in 1941. When war broke out later that year, the banks became essential sources for government investment in new factories. At the end of the war in 1945, there was tremendous demand for housing, food, and other goods, and a ready supply of workers returning from combat. The growing volume and velocity of money flowing through the economy fueled the growth of the banks.

New demands were put on banks, however, when the areas they served became saturated. Unless they could expand geo-graphically, the banks’ growth would be tied only to local average income growth. Providence National boosted its geo-graphical coverage in 1951 by merging with another major Providence bank, the Union Trust Company. A year later, the company changed its name to Providence Union National Bank and Trust. In 1954, this company completed another merger, this time with the company founded by Samuel Colt, the Indus-trial Trust Company. The new institution took the name Indus-trial National Bank, but continued to operate under the original Providence Bank’s 1791 charter. The company remained strongly involved in lending operations to the local jewelry industry, an area in which it specialized.

Industrial National formed its own holding company, Indus-trial Bancorp, in 1968 (thereby launching the modern fashion of spelling bank with a “c”). The creation of this holding company permitted the institution to skirt regulatory restrictions in the 1956 Bank Holding Company Act that would have precluded the Industrial National Bank from conducting a range of nonbank financial services. The company gained a listing on the New York Stock Exchange on September 18, 1968. Indus-trial Bancorp changed its name to the Industrial National Corporation in 1970, and began its diversification in 1972, when it purchased New York-based Ambassador Factors. A year later it took over the Southern Discount Company of Atlanta. In 1974 the company acquired Mortgage Associates, a mortgage banking group headquartered in Milwaukee. The man behind Indus-trial National’s diversification strategy was John J. Cummings, Jr., who believed that there was no justification for perpetuating the distinction between banking and traditionally nonbank financial services.

The State Bank of Albany began a similar transformation in 1972, when it took over the Liberty Bank of Buffalo. Liberty had been established in 1882 as the German-American Bank, but adopted the new name in 1918 amid public opposition to anything “German” during World War I. In fact, the bank was a wholly American-owned institution and had nothing to do with Germany or the war. With this transaction, the State Bank of Albany created a holding company called the Union Bank of New York.

Emergence of Fleet in the 1980s

In 1975 a former insurance executive named Peter D. Kiernan assumed leadership of Union Bank, emphasizing the need for better service. Like Cummings, Kiernan hoped to expand the Union Bank’s scope of operations through acquisition. In 1982 he changed the company’s name to Norstar Bancorp. He engineered Norstar’s acquisition of the Utica-based Oneida Bank & Trust Company and carried out the first interstate bank merger in nearly 30 years by acquiring the Northeast Bankshare Association of Maine. In 1983 the company formed the Norstar Bank of the Hudson Valley by acquiring and merging the Sullivan County National Bank, Rondout National Bank, and Highland National Bank. The Norstar Bank of Long Island was formed by the merger of the Hempstead Bank, Peninsula National Bank, and Island State Bank. Later that year the Oneida National Bank and the State Bank of Albany were merged to form the Norstar Upstate Bank Group.

Company Perspectives

FleetBoston Financial is combining the best of our two organizations, Fleet and BankBoston, to create exceptional financial opportunities for 20 million customers. Our innovative banking services are complemented by a firm commitment to strengthen the communities where we do business through financial support, sponsorships, community development and service programs.

Cummings also branded his company with a new name, adopting the moniker Fleet Financial Group, Inc. in 1982. He considered the company’s various divisions to be like a fleet of ships, all working in support of one another. The maritime name was popular in Rhode Island, where the local economy depended on fishing and shipping. Cummings retired later that year and was succeeded by the decidedly gruff J. Terrence Murray. As chairman and CEO, Murray continued Fleet’s rapid expansion in order to build the “critical mass” it would need to compete with bigger banks in New York and California (at the time of Murray’s ascension, Fleet had total assets of only $4.5 billion). By 1985 the company had 322 offices in 33 states and four foreign countries. That year, after fighting regulatory and legal battles, Fleet established de novo banks in Boston and Hartford. It also acquired First Connecticut Bancorp of Hartford in 1985, the company’s first bank acquisition outside Rhode Island, and Merrill Bankshares, a major Maine bank that had been established in Bangor in 1903, the following year.

Meanwhile, Norstar acquired the 102-year-old Security Trust Company in 1984 and the Bank of Maine a year later. In 1986 the company established Norstar Trust. After nearly 200 years of operation, Fleet and Norstar began crowding each other’s territory. Murray and Kiernan began informal discussions about merging the two companies.

Murray was distracted, however, by a painful investigation of his company’s mortgage lending operation, in which regulators charged that Fleet had taken unfair advantage of the staterun Rhode Island Housing & Mortgage Finance Corporation. The agency had become a major Fleet customer, and, it was charged, Fleet’s relationship with the bank had become so cozy that Fleet’s loan officers were allowed to use agency loans to enrich themselves. More than 250 loans were granted to Fleet employees, and one even went to Murray’s in-laws. But an investigation exonerated Murray and concluded that only 11 of the loans were improper. Still, the debacle exposed Fleet’s capacity for corruption and, more importantly, its lack of effective senior management oversight.

Murray was also suffering from his growing reputation as a ruthless “downsizer.” Indeed, many of the institutions acquired by Fleet were inefficiently run companies with poorly administered data systems. One way in which Fleet was able to derive greater productivity from its acquisitions was to consolidate their administrative positions into Fleet’s existing staff and fold their diverse computer operations into Fleet’s own system. This necessitated firing hundreds of redundant employees, but dramatically increased the profitability of the company’s operations.

Key Dates

1784:: Massachusetts Bank is founded in Boston.
1791:: Providence Bank is founded in Rhode Island.
1803:: The State Bank of Albany is formed in upstate New York.
1836:: The Warren Bank, predecessor of Shawmut National Corporation, is founded in Boston.
1859:: Safety Fund Bank is founded in Boston.
1864:: Massachusetts Bank becomes a national bank, as Massachusetts National Bank of Boston; Safety Fund becomes a national bank, as First National Bank of Boston.
1865:: Providence Bank becomes a national bank, under the name Providence National Bank.
1886:: The Industrial Trust Company is established in Rhode Island.
1903:: Massachusetts National and First National Bank of Boston merge, taking the latter’s name.
1926:: Providence National makes first acquisition, Merchants National Bank.
1944:: Baystate Corporation, predecessor of BayBanks, Inc., is founded in Boston.
1951:: Providence National acquires Union Trust Company.
1952:: Providence National changes its name to Providence Union National Bank and Trust.
1954:: Providence Union merges with Industrial Trust, forming Industrial National Bank.
1968:: Industrial National forms holding company, Indus-trial Bancorp.
1970:: Industrial Bancorp is renamed Industrial National Corporation; Bank of Boston reorganizes under a new holding company, First National Boston Corporation.
1972:: Industrial National begins diversifying into nonbank financial services; State Bank of Albany takes over Liberty Bank of Buffalo, creating a holding company called Union Bank of New York.
1982:: Union Bank is renamed Norstar Bancorp; Industrial National is renamed Fleet Financial Group, Inc.
1983:: First National Boston changes its name to Bank of Boston Corporation.
1985:: Fleet makes its first bank acquisition outside Rhode Island, First Connecticut Bancorp of Hartford.
1988:: Fleet acquires Norstar, forming Fleet/Norstar Financial Group.
1991:: Fleet/Norstar takes over the failed Bank of New England.
1992:: Fleet/Norstar readopts the name Fleet Financial Group, Inc.
1995:: Fleet acquires Shawmut National and moves its head-quarters to Boston.
1996:: Fleet acquires New Jersey-based NatWest Bancorp; Bank of Boston acquires BayBanks.
1997:: Fleet acquires Columbia Management Company, an asset management firm; Bank of Boston changes its name to BankBoston Corporation.
1998:: Fleet acquires discount broker Quick & Reilly, the consumer credit card operations of Advanta Corpora-tion, and Merrill Lynch Specialists; BankBoston acquires Robertson Stephens, an investment banking firm.
1999:: Fleet acquires Sanwa Business Credit, a leasing and asset-based lending firm; Fleet acquires BankBoston and renames itself Fleet Boston Corporation.
2000:: Company is renamed FleetBoston Financial Corporation.

Driven by increasing competition from the Bank of Boston and the Bank of New England, Murray and Kiernan finally engaged in serious merger talks in 1987. The merger of Fleet and Norstar was announced January 1, 1988. Although Fleet acquired Norstar for $1.3 billion, Norstar’s Kiernan was named chairman and CEO of the new company, which was called the Fleet/Norstar Financial Group. The merger mania continued in 1988 as Fleet/Norstar acquired the New Hampshire-based Indian Head Banks and began consolidating banking operations in Maine. Kiernan died suddenly on September 14, and, six days later, Murray was appointed to succeed him.

Early in 1989 it was revealed that the widespread slump in property values and poor federal oversight of the real estate industry had caused a serious banking crisis. Hundreds of financial institutions were saddled with billions of dollars in bad debt. One of these was Fleet/Norstar’s chief competitor, the Bank of New England. BNE’s crisis began in 1986 when it outbid Fleet for the Conifer Group, a Massachusetts real estate lender. Conifer’s portfolio was a shambles, riddled with failed or shaky deals. Ironically, in losing its bid for Conifer, Fleet avoided a ruinous liability that, in the end, caused BNE to be seized by the Federal Deposit Insurance Corporation.

Fleet’s Acquisitive and Diversifying 1990s

By 1990, the FDIC was eager to dump BNE and offered exceedingly generous guarantees against its liabilities. Fleet/ Norstar badly wanted to bid for BNE, but lacked the capital of leading contenders such as BankAmerica and the Bank of Boston. The leveraged buyout firm Kohlberg Kravis Roberts also wanted to bid for BNE, but regulators soured on the idea of turning New England’s second largest bank over to a group of corporate raiders. It became apparent that Murray and KKR’s Henry Kravis needed each other, KKR for its money and Fleet/ Norstar for its banking expertise. The two groups battled over the terms of their $625 million bid until just five minutes before the FDIC’s deadline. To everyone’s surprise, the Fleet/NorstarKKR bid won.

Following the completion of the takeover in 1991, Murray immediately launched into BNE’s cost centers, consolidating its data centers with those of Fleet/Norstar and firing nearly half of BNE’s 11,000 employees. What remained was a bank with $15 billion in assets, the most extensive retail branch network in the region, and a large number of stable business loans. Within a year, Fleet/Norstar had rehabilitated BNE and turned a number of nonperforming loans back to the FDIC. The failed bank, which Business Week said had the allure of a toxic waste dump, was profitable sooner than anyone would have imagined. The BNE takeover enabled Fleet to surpass the Bank of Boston as the largest bank in New England; it also made KKR the company’s biggest shareholder.

The company reverted to its old name, Fleet Financial Group, in 1992, the same year it suffered a public relations blow from a 60 Minutes report alleging that the company had discriminated against low-income minority customers in Georgia by charging them excessively high interest rates and fees in connection with their home equity loans. In 1993 Fleet agreed to pay $30 million to the affected customers and to inject $70 million into low-income housing programs. Also in 1993 came the launch of a massive cost-cutting campaign, which was designed to increase profits, bolster the stock price, and position Fleet to be a survivor of the banking industry’s rapid consolidation rather than one of the casualties. After acquiring 49 banks in the 1980s, not to mention the takeover of Bank of New England, Fleet was a somewhat bloated organization. A months-long, top-to-bottom review of the entire operation resulted in the cutting of all kinds of expenses, as well as the March 1994 announcement that the company would lay off ten percent of its workforce, about 3,000 employees. The result would be a reduction in annual expenses of $300 million.

With its expenses pared down, Fleet went on a buying spree over the next few years that rapidly bolstered its position as the leading retail banking firm in New England and diversified it further into nonbank financial services. After entering into merger discussions with Bank of Boston in 1994, Fleet acquired another of the region’s longtime banking institutions, Shawmut National Corporation, which traced its history back to the 1836 founding in Boston of the Warren Bank. Bank of Boston had been attempting to merge with Shawmut for several years, meaning that Fleet had once again bested its arch-rival. After completion of the $4.5 billion acquisition of Shawmut in November 1995, Fleet relocated its headquarters to Boston, where the arena that replaced the historic Boston Garden was soon named the FleetCenter. Fleet was now the leading bank in every New England state except Vermont, and its assets had grown from $48.76 billion in 1994 to $84.43 billion in 1995, the latter being nearly double that of Bank of Boston. The consolidation of Shawmut was a difficult one and involved the elimination of about 4,500 jobs. Nonetheless, Fleet pressed ahead with another acquisition in May 1996, acquiring New Jersey-based NatWest Bancorp from National Westminster Pic for $2.7 billion. The addition of NatWest extended Fleet’s branch network south to New Jersey as well as bolstering its presence in upstate New York. At the end of 1996, Fleet stood as the 11th largest bank in the United States, and was emerging as one of the leading superregional banks.

Murray held off on making any more bank acquisitions while integrating NatWest, but made a number of moves out-side of banking. In December 1997 Fleet acquired Columbia Management Company, a Portland, Oregon-based money management firm with about $21 billion of assets under management. In February 1998 two acquisitions were completed: a $1.6 billion deal for Florida-based Quick & Reilly Group, Inc., the number three discount brokerage in the country; and a $500 million deal for the consumer credit card operations of Advanta Corporation. Fleet also bought Merrill Lynch Specialists, Inc. in December 1998 and merged it into Fleet Specialists, Inc., and then two months later picked up Sanwa Bank, Ltd.’s Sanwa Business Credit unit, which was involved in leasing and asset-based lending. The Sanwa unit became part of the fast-growing commercial finance unit, Fleet Capital Corporation. After swallowing up this series of financial services firms, Fleet then rejoined the realm of retail banking consolidation with the announcement in March 1999 of its biggest acquisition ever, that of crosstown rival BankBoston Corporation (the name adopted by Bank of Boston in 1997).

Early History of BankBoston’s Predecessors

BankBoston Corporation was older than that of the Constitution of the United States, and its story was a long and distinctive one. It traced its roots back to the Massachusetts Bank, which was founded in 1784. Its progenitors were Boston import-export merchants who were tired of having to deal with British banks when sending money to distant places. The bank was the first bank in the city of Boston and, indeed, the only one until 1792, when the Union Bank was founded and Alexander Hamilton’s Bank of the United States opened a branch in Boston.

From the start, the Massachusetts Bank’s strict lending policies and conservative ways made it no friends among consumers, who had few alternatives in seeking credit. It not only did not pay interest on customer deposits, but it even charged a fee for keeping them at one point. But times were uncertain at best during the early years of the Republic; a complete overhaul of the federal government, Shay’s Rebellion, the War of 1812, and the ensuing two-year depression all happened within 30 years of the bank’s founding. The Massachusetts Bank weathered each of these crises, however, and in 1838 its assets amounted to more than $1 million.

When the Civil War broke out in 1861, the Massachusetts Bank was part of a consortium of Boston banks that extended nearly $35 million in credit to the Union government. It also supported the Union war effort by buying $50,000 worth of treasury bonds. A more important development that occurred during the war was the advent of a national banking system, which Congress created in 1864 to make war financing easier through the establishment and circulation of a national currency. True to the Massachusetts Bank’s conservative tradition, President John James Dixwell expressed suspicion about the new system, but saw that if his bank did not join, it would fall behind its competition. In 1864 the bank renamed itself the Massachusetts National Bank of Boston.

By 1884, there were 59 banks in Boston besides Massachusetts National, and the competition was so fierce that it could not afford to maintain its cautious ways and expect to survive. Yet, the bank did just that. As a result, however, its annual profit declined from a record $250,038 in 1873 to $70,000 by the end of the century.

Emergence of First National Bank of Boston in the 20th Century

Near the end of the 19th century, Boston’s banking industry also underwent a wave of mergers, the most important of them engineered by the Shawmut National Bank and the investment banker Kidder, Peabody & Company. In reaction to this development, Massachusetts National decided to merge with the First National Bank of Boston, which had openly defied Shawmut National’s power play, in 1903. First National had been founded in 1859 as Safety Fund Bank, changing its name in 1864 when it joined the national bank system. The new institution bore the First National name, and although Massachusetts National President Daniel Wing stayed on as president, First National President John Carr became chairman of the board.

The First National Bank of Boston prospered under the guidance of Daniel Wing. When World War I broke out in 1914, the bank took little notice—the United States was still a nonbelligerent and Europe seemed far away. The big event of 1914 for the bank was its participation in the new Federal Reserve system; it purchased 6,000 shares of the Federal Re-serve bank’s capital stock and purged its own board of directors of members involved in securities dealing and investment banking, in compliance with the Federal Reserve Act. In 1915 the bank extended $1 million worth of credit to the British government and made a $5 million loan to Russia the next year. Early in 1917, despite the fact that the distant clash of war was getting closer, the Bank of Boston opened its first overseas office, in Buenos Aires, following New England wool traders there. Once the United States formally entered the war later that year, the bank did its part by purchasing a large quantity of war bonds from the U.S. Treasury.

To say that the Bank of Boston grew and prospered during the boom years of the 1920s would be an understatement. The bank made its first substantial plunge into retail banking in 1923, when it acquired the International Trust Company. By 1924, the bank had grown to many times the size it had been before World War I. It employed 1,657 people, compared to 152 in 1908; its capital stood at $15 million, compared to $2 million; and its loan volume had grown to $222 million, from $28 million.

Despite the October stock market crash that threw the financial community into a panic, 1929 was a prosperous year for the Bank of Boston. Either the directors did not recognize the severity of the crisis right away or they were confident that the bank would withstand it, because they authorized the acquisition of Old Colony Trust Company late that year. In addition, in 1931 the bank bought out the Jamaica Plain Trust Company. Bank of Boston survived the Great Depression in relatively strong condition, although it cut its dividend continually until 1937. It was also forced to divest its investment-banking arm, the First Boston Corporation, after the passage of the GlassSteagall Act in 1933, which prohibited commercial banks from engaging in investment banking and securities dealing.

Rumors of war once again emanated from Europe at the end of the 1930s. As in 1914, the Bank of Boston took little notice except regarding the matter of outstanding loans to German interests. As the Nazi government in Germany prepared for hostilities, concerns arose that the bank would not be able to collect from its German borrowers. W. Latimer Gray, head of Bank of Boston’s foreign operations, went to Germany himself in the summer of 1939 to secure repayment. Gray had met many prominent Germans in the course of his business dealings, but found himself trailed by Gestapo agents during his trip. He and his wife left the country just before the invasion of Poland, carrying with them a draft on Britain’s Midland Bank for $500,000, enough to cover the Bank of Boston’s loans.

During World War II employees left to join the military and the bank extended emergency credit to the federal government to help finance military orders, but these things were a matter of course for every major American bank during the war. In 1945, with the end of the war in sight, the Bank of Boston acquired the First National Bank in Revere, Massachusetts. Once the war ended the bank went about expanding as before, opening a branch office in Rio de Janeiro in 1947.

By 1950, Bank of Boston’s assets totaled more than $1.5 billion. The bank continued to prosper during the decade and its foreign business expanded. Factoring—the practice of buying accounts payable from merchants and assuming responsibility for their collection—also became a substantial part of the Bank of Boston’s business during this time. In 1959 the bank posted record revenues of $20.4 million. It was also one of the few American banks to withdraw its assets from Cuba before Fidel Castro nationalized that nation’s banks.

In the early 1960s, the Bank of Boston internationalized its factoring operations. In 1961 the bank’s newly formed subsidiary, Boston Overseas Financial Corporation, joined with British merchant bankers M. Samuel & Company and Tozer, Kemsley & Millbourn to form International Factors, Limited. The next year, Boston Overseas Financial expanded its factoring business to the Netherlands, Switzerland, Australia, and South Africa. The Bank of Boston increased its international presence even further in 1964 when it opened a branch office in London.

The First National Bank of Boston continued to prosper through the 1960s, although its financial performance suffered somewhat late in the decade when high interest rates, due to inflation and increased demand for credit, caused it to take losses on its bond holdings. By 1970, it had acquired a reputation as a creative lender that was always willing to find unconventional solutions to problems of finance. Serge Semenenko, the flamboyant Russian-born head of the semiautonomous special industries department, contributed substantially to this image. Hilton Hotels, International Paper, the Saturday Evening Post, and Warner Brothers Studios were among his many clients.

Bank of Boston’s Difficulties in the 1970s and 1980s

In 1970 the Bank of Boston reorganized under a new holding company, First National Boston Corporation. From there, the bank embarked on a string of acquisitions of Massachusetts banks in an effort to become a regional powerhouse. In 1982, reflecting the new prominence that large regional banks would soon have in the national banking arena, the bank renamed itself Bank of Boston National Association. The bank’s holding company was renamed Bank of Boston Corporation the following year. In 1985 Bank of Boston moved to solidify its grip on New England with the acquisition of Waterbury, Connecticut-based Colonial Bancorp, and followed in 1987 with the purchase of BankVermont Corporation. Its aggressive lending policies also helped spark Massachusetts’ much-heralded economic revival in the 1980s, when the bank made substantial loans to high-technology concerns, including Wang Laboratories and Data General Corporation. Moreover, it did a good job of dodging the Third World debt crisis in 1987 by writing off nearly two-thirds of its loans at the first sign of trouble.

At the same time, however, Bank of Boston developed a reputation for aloofness, even arrogance, during the 1970s and 1980s. One incident that contributed to this perception occurred in the mid-1970s, when the city of Boston underwent its worst fiscal crisis since the Great Depression and turned to the bank for help. Although the Bank of Boston eventually bought the city’s notes as requested, many city officials bristled at the bank’s demands, including an unsuccessful insistence that the state guarantee certain city debts. For several years thereafter, Boston City Hall pointedly chose Morgan Guaranty Trust, a New York investment bank, as its underwriter. The Bank of Boston was also known for its unwillingness to discuss its lending practices and local affairs with community activists. “They just project an elitist, uncaring attitude,” a spokesman for a rival bank told Business Week in 1985.

But the worst public relations disaster of all for the bank came in 1985, when the Justice Department charged that the Bank of Boston had processed more than $1.2 billion worth of cash transactions between 1980 and 1984 without reporting them to the Treasury Department as required by a federal law designed to prevent money laundering. The accusations stemmed from an investigation of Gennaro J. Angiulo, the alleged head of New England’s largest organized-crime family. Federal investigators found that Angiulo and his associates had made a habit of walking into a Bank of Boston branch in Boston’s North End with paper bags full of cash and exchanging them for cashier’s checks. They also found that the bank had not reported large shipments of American currency to and from Swiss banks. At first, Bank of Boston denied any wrongdoing in the Angiulo affair and CEO William Brown charged that it was the victim of misrepresentation in the press. Later, once the evidence came out, Brown was forced to admit to “poor judgment” on the part of lower-level employees; the bank pleaded guilty to the Justice Department’s charges and paid a $500,000 fine.

By the late 1980s Bank of Boston seemed to have recovered from the Angiulo affair, but the fiasco raised serious questions about the way the bank was run under William Brown and his predecessor, Richard Hill. Ira Stepanian succeeded Brown as chairman and CEO in 1989, a year in which the company posted a $300 million loss in the last quarter, due in large part to bad property loans. Income for the year fell 79 percent as Bank of Boston felt the effects of the collapse in the New England real estate market and the resulting wave of loan defaults.

String of Setbacks and Takeover of Bay Banks in the 1990s

Bank of Boston’s troubles continued in the early 1990s with the real estate collapse as well as the recession leading to a record net loss of $395 million in 1990, another loss in 1991, the fall of its stock from $30 a share to as low as $3 in 1991, and whispers of impending insolvency. Another blow came in 1991 when Fleet Financial beat out Bank of Boston in the bidding to take over the failed Bank of New England, and in the process surpassed Bank of Boston as the top bank in New England. Bank of Boston then attempted to leapfrog back over Fleet through a merger with another Boston-based bank, Shawmut National Corporation, but the deal fell apart in January 1992 over the roles of the firms’ top executives.

Despite this latest setback, Bank of Boston rebounded during 1992 as it began to focus on community lending—focusing on small businesses, home mortgages, and personal loans; this was a remarkable change for a bank with a reputation for its snootiness. It returned to profitability the year after. The company expanded its financial services offerings in 1993 through the launch of a family of mutual funds called the 1784 Funds. It also expanded its retail banking system through the acquisitions of two small New England banks, Dedham, Massachusetts-based Multibank Financial Corporation and Hartford-based Society for Savings Hancorp for a total of about $400 million. Each of the banks had assets of about $2.5 billion and operated more than 75 branches. Late in 1993 Bank of Boston, seeking to flatten its organizational chart and become more responsive to its customers, eliminated an entire layer of top management.

As bank consolidation proceeded in the mid-1990s, Bank of Boston became increasingly desperate to engineer a merger, lest it be swallowed up by a much larger bank. The company entered into merger discussions with Reet in 1994, but Fleet decided instead to acquire Shawmut, striking Bank of Boston a double blow. With the completion of Fleet’s acquisition of Shawmut in 1995, Fleet’s assets of $84.43 billion would be nearly double those of Bank of Boston. While Fleet was finalizing its purchase (and adding insult to injury by relocating its headquarters to Boston), Bank of Boston was seeking another merger partner. But a string of possible mergers—with New Jersey’s First Fidelity Bancorp, Pittsburgh-based Mellon Bank Corporation, Philadelphia-based CoreStates Financial Corporation, and Bane One Corporation of Columbus, Ohio—all fell through during the first several months of 1995. Many analysts and shareholders blamed Stepanian for being too inflexible in merger talks, leading to the string of failures. Under increasing pressure from investors, Stepanian resigned in July 1995, and the company’s president, Charles Gifford, took over as chairman and CEO.

Under Gifford’s leadership, Bank of Boston finally completed a major merger in July 1996, when it took over crosstown rival BayBanks, Inc. in a $2 billion stock swap. BayBanks had been founded in 1944 as Bay state Corporation and had a strong retail banking emphasis, with 205 branches and a superior network of 1,000 ATMs. BayBanks’ strong presence in Boston enabled Bank of Boston to regain from Fleet its leadership position in its home city. The addition of BayBanks’ $11.5 billion in assets pushed Bank of Boston’s assets to $62.31 billion by the end of 1996. The head of BayBanks, William Crozier, was named chairman of Bank of Boston following completion of the deal, with Gifford remaining CEO (he re-gained the chairmanship the following year). A new president was named as well, Henrique de Campos Meirelles, who had headed up Bank of Boston’s Brazilian operations.

Bank of Boston changed its name to BankBoston Corporation in 1997 and began beefing up its international and nonbank financial services operations. That year, the company began expanding its retail banking network in Argentina, opening 17 new branches. Then in January 1998 BankBoston spent about $255 million to purchase Deutsche Bank Argentina, S.A. from Deutsche Bank AG of Germany. Gained through this transaction were 48 branches in Argentina, which were added to the 44 BankBoston already had in that country; by the end of 1998 the opening of additional branches brought the total to 139. In August 1998 BankBoston acquired Robertson Stephens & Co. from BankAmerica Corporation for about $800 million, the second largest acquisition in company history, after the purchase of BayBanks. A San Francisco-based investment banking firm that was one of the leading players in the hot high-tech capital raising sector, Robertson Stephens was combined with BankBoston’s existing investment banking unit to form BancBoston Robertson Stephens.

Meantime, in March 1998, the head of BankBoston’s private bank in New York, Ricardo S. Carrasco, turned fugitive after he was charged with falsifying records and embezzlement in connection with a fraudulent loan scheme involving an Argentine businessman that totaled more than $62 million—the largest case of fraud in the bank’s 214-year history.

The global economic crisis that started in Asia in 1997, then spread to Latin America and other regions in 1998, hurt the company’s Boston-based global capital markets business, leading to trading losses of about $100 million in 1998. In October 1998 BankBoston announced that it would close its branches in India, Japan, the Philippines, and Taiwan, reducing its Asian operation to a headquarters in Singapore and branches in Hong Kong and South Korea. BankBoston ended 1998, what would be the last full year of its long history, with assets of $73.51 billion and net income of $783 million.

FleetBoston Financial Corporation Emerges at the Turn of the Millennium

In March 1999 Fleet Financial Group announced that it had reached an agreement to acquire BankBoston in a $16 billion stock swap, ending the long and sometimes bitter rivalry between New England’s two largest banks. Upon completion of the acquisition in October 1999, Fleet became the eighth largest bank in the country, with assets of $190.69 billion. With this culmination of a decade of hyperacquisitiveness, Fleet had taken over, directly or indirectly, eight of the ten biggest banks in New England. To gain regulatory approval, Fleet agreed to divest 306 branches and $13. 2 billion in deposits in what was the largest divestiture in U.S. banking history, a divestiture that aimed at enabling another major bank to compete with Fleet in New England. Most of the branches were sold to Philadelphia-based Sovereign Bancorp Inc. during 2000.

After the acquisition was finalized, Fleet changed its name to Fleet Boston Corporation and, ultimately, to FleetBoston Financial Corporation in early 2000. The inclusion of “Boston” in the name was at the insistence of Gifford, who initially served as president of FleetBoston, while Terrence Murray, the head of Fleet, served as chairman and CEO. The “BankBoston” name would largely disappear, with the bank branches all adopting the geography-free “Fleet” moniker, and BancBoston Robertson Stephens was renamed FleetBoston Robertson Stephens Inc. The exception were the Latin American operations, which continued to operate as “BankBoston.” As was typical in mergers of this magnitude, FleetBoston announced in 2000 that the consolidation of operations would result in the layoff of about 4,000 workers. The company projected that merger-related efficiencies would eventually lead to annual cost savings of about $600 million.

In addition to focusing on integration issues, FleetBoston was pursuing a number of other strategies for the early 21st century. Already armed with a strong presence in Internet banking and online trading, the company began offering an integrated online service, whereby its customers could check balances, pay bills, and execute securities trades through Quick & Reilly, all through one account and one sign-on. With little room to grow in its core retail banking market of New England, FleetBoston was targeting New York City as its next big growth market, aiming to rapidly expand its existing 18-branch operation. In addition, in July 2000 the company announced that it would pay $200 million to acquire M.J. Meehan & Co., LLC, a specialist firm that it intended to merge into its existing specialist unit to form Fleet Meehan Specialists (specialists are floor-trading firms that execute the trades of specific assigned stock, helping to maintain order on the exchange and aiming to make a profit in the process). Fleet Meehan Specialists would be the largest specialist operator on the floor of the New York Stock Exchange.

Principal Subsidiaries

Fleet National Bank; Fleet Bank (RI), National Association; Fleet Credit Card Holdings, Inc.; Fleet Credit Card Services, L.P. (98.73%); Fleet Mortgage Group, Inc.; Fleet Holding Corp.; Fleet Capital Corporation; Fleet Leasing Partners I, L.P.; Fleet Business Credit Corporation; Fleet RI Holding Corp.; Fleet Investment Advisors Inc.; Fleet Investment Services, Inc.; Boston World Holding Corporation; Boston Overseas Financial Corporation (Argentina); Fleet Bank, National Association; Fleet Private Equity Co., Inc.; Quick & Reilly/Fleet Securities, Inc.; FleetBoston Robertson Stephens Inc.; BancBoston Investments Inc.; BancBoston Capital, Inc.

Principal Competitors

Bank of America Corporation; The Bank of New York Company, Inc.; Bank One Corporation; The Charles Schwab Corporation; The Chase Manhattan Corporation; Citigroup Inc.; Countrywide Credit Industries, Inc.; Deutsche Bank AG; FMR Corp.; First Union Corporation; J.P. Morgan & Co. Incorporated; KeyCorp; Mellon Financial Corporation; Merrill Lynch & Co., Inc.; National Discount Brokers Group, Inc.; Olde Dis-count Corporation; The PNC Financial Services Group, Inc.; The Royal Bank of Scotland Group plc; SLM Holding Corporation; State Street Corporation.