First Fidelity overcame woes with skill, luck

March 22, 1994|By Timothy J. Mullaney | Timothy J. Mullaney,Sun Staff Writer

First Fidelity Bancorp. was in a position yesterday to buy Baltimore Bancorp because of managerial skill, falling interest rates -- and a big dollop of luck.

The New Jersey-based regional banking titan had only a fraction of the real estate lending problems of peer banks such as MNC Financial Inc., parent of Maryland National Bank, and Edison, N.J.-based Midlantic Corp., in large part because of disasters that hit in 1988.

The bank lost about $150 million on loans to a developer who renovated old factories and warehouses into apartments (including the Sail Cloth Factory in Baltimore) and on other loans made by its London subsidiary. The chief executive quit under fire, the stock plunged 25 percent in a day, and the company looked like the bottom was about to fall out.

Except for one thing: When other banks were making real estate loans in 1989 and 1990 that turned out two years later to be even more disastrous, First Fidelity was licking its wounds and trying to fix problems it found in 1988. Thus the bank was saved from the mess that made Maryland National takeover bait. Saved, perhaps, from itself.

"They were basically out of the game by the time everything really hit," said Nancy A. Bush, an analyst for Brown Brothers Harriman & Co. in New York. "They had commercial real estate [problems] but they recognized it pretty early in the game."

But there were still plenty of problems to fix, and in 1990 the company hired Anthony Terracciano to fix them. The chairman and chief executive, now 55, built on his predecessors' good fortune of making their real estate mistakes early and relatively small, and supplied the management skill to meld eight banks into a single, leaner machine.

"When Terracciano got here, we were running eight different banks in two states," First Fidelity spokesman Paul Levine said. The problem: The 1988 loan losses followed shortly on the heels of the merger that formed First Fidelity, when First Fidelity Inc. of Newark merged with Philadelphia-based Fidelcor Inc. The turmoil over the loan losses stopped efforts to merge the company's back-office operations and achieve the cost savings needed to make the combination more profitable.

Mr. Terracciano laid off 1,400 workers within two months of his spring 1990 arrival, Mr. Levine said. He then wrote down $498 million worth of loans in 1990, well below the $976 million MNC wrote off the same year, and selling 20 percent of the company to the Spanish bank Banco Santander in order to rebuild First Fidelity's capital base.

The moves helped First Fidelity, which today has nearly $34 billion in assets, to hold its 1990 losses to $6 million. MNC lost $440 million and was ultimately acquired by NationsBank Corp. of Charlotte, N.C. First Fidelity went on to earn $221 million in 1991 and $399 million last year.

Agenda addressed

Mr. Terracciano "had an agenda and he addressed that agenda," Mr. Levine said.

Now, First Fidelity has set out to make itself too big to acquire, said analyst Lauren Smith of Dillon Read & Co. in New York. The Baltimore Bancorp acquisition is the 18th that First Fidelity has .. announced since Mr. Terracciano arrived.

Analysts expect that First Fidelity will snap up other banks or S&Ls in the Baltimore-Washington corridor as part of its plan to build a regional base covering maritime and international trade centers from Boston to Washington.

"He starts with a small acquisition and builds on it," Ms. Bush said. "He did the same thing in Connecticut."

Initially, First Fidelity concentrated on buying banks and thrifts that had been taken over by government regulators, Mr. Levine said. Such institutions were typically available very cheaply, and buyers could take over assets such as customer relationships without taking responsibility for specific soured loans.

But last year, the company started looking for deals to buy solvent banking companies, Mr. Levine said. The Baltimore Bancorp deal represents the most First Fidelity has paid for ``TC bank to date, he said, though it has bought some bigger banks at lower prices because those targets were in worse financial condition.

The company has justified acquisition premiums like the 2.3 times book value it agreed to pay for Baltimore Bancorp -- the $20.75 a share price is double the book value Baltimore Bancorp is expected to have by year-end -- by cutting costs at the banks it buys by as much as 70 percent. First Fidelity said yesterday that it plans to cut costs at Baltimore Bancorp by 40 percent.

While Mr. Levine would not estimate how many jobs might be slashed in such a cost-saving spree, Ms. Bush estimated that the cuts will claim about 325 jobs out of approximately 1,125.

Opportunity to grow

What First Fidelity will add to the Bank of Baltimore will be a strong presence in commercial banking, a field the Bank of Baltimore had found tough to crack after converting the company to a bank from a savings and loan in 1984.

Mr. Levine said First Fidelity was attracted to Baltimore Bancorp because of its strong consumer lending and mortgage businesses, as well as the opportunity to grow its position in commercial banking to the 4,600 companies in Baltimore Bancorp's market area that he said have annual sales between $2 million and $250 million.

"Our view of the Maryland economy is that it's very strong, stronger than some places where we are now, and we operate in some fairly affluent markets," Mr. Levine said.

Ms. Bush said First Fidelity needed to grow to the south because New Jersey has been slow to resume strong growth after the recession, in part because of cutbacks at American Telephone & Telegraph Co., a major employer in northern New Jersey, and the uncertain future of drug companies pending health care reform.

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