1st Fidelity to cut 500 jobs in Md.

January 19, 1995|By Timothy J. Mullaney | Timothy J. Mullaney,Sun Staff Writer Sun staff writer Ross Hetrick contributed to this article.

About 500 jobs at the former Bank of Baltimore -- nearly half the work force -- will vanish by summer, as the bank's new owner trims its payroll to cope with higher interest rates.

Although cuts had been expected, the magnitude of yesterday's announcement by First Fidelity Bancorp stunned employees. The cuts are twice as deep as the company had said were in store.

Indeed, they are so deep that even the man who led the decision to sell the bank to the Lawrenceville, N.J.-based bank holding company was caught off guard.

"This is a surprise to me," said Edwin F. Hale Sr., the former chairman of Baltimore Bancorp. "I was not aware of it."

First Fidelity completed its purchase of the local bank in November.

Workers at the bank's local headquarters, in the Bank of Baltimore building downtown, said there had been no internal announcement of the cuts.

Employees at the bank's operations center at 205 W. Centre St., however, have known for months that most of the cuts expected when the merger was announced would come at their location. The rest would come from branches in other parts of the state.

"I'm getting out of the banking business," said one female employee who refused to give her name. "Every time you turn around, another bank is buying out another one."

Another worker at the operations center, who expects to lose her job this spring, was more philosophical.

"Stuff like this happens," said Stacy Blackwell, a clerical worker. "I'm going to find a job."

The Maryland cuts will be matched by 500 job cuts in other First Fidelity-owned banks in New Jersey, Pennsylvania, New York and Connecticut, as the bank makes a companywide assault on costs. About 300 workers companywide were dismissed last week.

First Fidelity wants to cut nearly 8 percent of the 13,000 people it employed at year's end. Forty branches in Pennsylvania and New Jersey will close, but no Maryland branches are slated for closing, company spokesman Paul Levine said.

Since March, more than 100 Baltimore Bancorp employees have left and not been replaced, and 30 local workers were among those terminated last week, the company said.

Many of the remaining cuts also will be handled by attrition, but First Fidelity said it expects to have to fire other workers. It set aside $5 million for severance packages, outplacement assistance and other help for the workers expected to be dismissed, Baltimore-based company spokeswoman Fran Minakowski said.

Mr. Levine said most of the cuts would come in the second and third quarters, after the company finishes integrating the Bank of Baltimore's computer and administrative operations into its existing systems.

Ms. Minakowski said other cuts will come from elimination of functions in marketing and investment operations that can be taken over by First Fidelity's existing staff. She said two senior vice presidents have left, as has at least one executive vice president and Mr. Hale.

"There will be a pretty wide distribution of the levels of [affected workers]," she said.

"The human aspect, we tend to take them for granted, but there's going to be a lot of pain in this," said Vernon Plack, a banking analyst for the Richmond, Va., securities firm of Scott & Stringfellow Inc. Nonetheless, he called the big cuts "necessary and good."

"There's going to be a lot of this in the banking industry," he said.

While First Fidelity's announcement blamed higher interest rates for the move, the slightly more complicated version of the truth is that banks made big profits in 1993 and early 1994 because short-term interest rates fell much more sharply than long-term rates during and after the 1990-1991 recession.

That let banks capitalize on a much bigger than normal gap between the price it had to pay for deposits and other sources of short-term money and the longer-term loans it could make to businesses and consumers. Rising rates on short-term securities are now squeezing that trend.

Federal regulators encouraged the pattern because they saw it as a way to help banks recover from late-1980s real estate lending that had turned disastrous by 1990, endangering many banks and raising the prospect that more banks might fail than the Federal Deposit Insurance Corp could bail out.

After 1991, bank profits shot upward. While Wall Street analysts in the late 1980s would praise bankers who could make $1 of annual profits for every $100 of a bank's assets, by 1993 First Fidelity made $1.26.

First Fidelity said its net interest income rose $29 million in 1993 because of the interest rate pattern. Total net interest income rose $139 million, with the rest of the gain coming from more volume, mostly because First Fidelity was acquiring other banks and making more loans.

As interest rates rose beginning in February, short-term rates rose faster than prices for longer-term loans. Banks lost their wide spreads, and that made the big profits of recent quarters unsustainable.

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