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Hillsborough Bank and Trust in Milford seized by FDIC October of 1991.
Monday, December 27, 2010

Plenty of signals before 1991 bank closures

Warning signs increasingly dotted the horizon as the hot summer of 1991 began to give way to fall.

A summertime Salem job fair that was set up for about 1,000 drew 10 times that many, and in early fall, then-state Banking Commissioner Roland Roberge made a series of urgent pleas to large depositors to insure their bank accounts.

But few New Hampshire residents beyond economics experts and bankers themselves had any idea what was about to take place just after lunch Thursday, Oct. 10, 1991.

That afternoon, even as customers filled out deposit slips, opened accounts, negotiated loans with customer service representatives or stopped to chat about the kids at banks as local and venerable as Nashua Trust Co., teams of federal and state banking officials marched almost simultaneously through the doors of the state’s five largest banks and their subsidiaries, read a statement and shuttered the buildings.

Locally and across much of the state, 10-10-91 infamously became “Black Thursday,” the day banking regulators seized all branches of Nashua Trust, Amoskeag Bank, BankEast, Bank Meridian, New Hampshire Savings Bank, Dartmouth Bank and Numerica Bank, freezing their combined $6 billion in assets for the time being and leaving thousands of bankers and their customers drawing comparisons to America’s most infamous economic collapse some 62 Octobers before.

Almost two decades later, here we are again – and by many accounts, taking more of an economic and financial beating.

The terms “recession” and even “depression” have made a resounding comeback the past couple of years, prompting economists from Wall Street on down to hold each era up to the light to find their similarities.

While it certainly doesn’t seem so to the thousands of Granite Staters still searching for work or trying to stave off foreclosure, the current recession ended, at least according to economic standards, a year and a half ago. Most would be quicker to agree with the National Bureau of Economic Research, which classifies our current downturn as the nation’s “longest and deepest recession of the post-World War II era.”

In comparison, the 1990-91 slide was slightly less severe than now on a nationwide scale, according to a recent Congressional Research Service report compiled by macroeconomic policy specialist Marc Labonte. He also states the 1990-91 downturn, in the grand scheme of recessions, is considered relatively mild and brief.

One of the major similarities of the 1990-91 and current recessions, Labonte states, is the widespread job losses and workers’ inability to find another job for months, even years, something he terms “lengthy jobless recoveries.”

One characteristic that Labonte calls unique to the current recession is the severe disruption to financial markets, a factor not present, or not very prevalent, in most recessions.

“While financial downturns commonly accompany economic downturns, financial markets have continued to function smoothly in previous recessions,” Labonte wrote. Thus rose the frequent comparisons between now and the Great Depression.

When it comes to banking, though, the similarities end. While the nation’s largest banks teetered on the verge of collapse during the most recent recession, New Hampshire’s small community banks remained healthy. They weren’t making the kind of risky loans that landed their larger counterparts in trouble when the real estate market came crashing down.

During the recession of the early ’90s it was the New Hampshire banks that suffered.

Nashua native G. Frank Teas, an admitted numerophile who entered the banking industry while still a student at Bishop Guertin High School, recalls standing between Nashua Trust Co. assistant vice president Lucille Lockwood and president and CEO Norm Storrs in the downtown bank’s lobby as bank examiners locked its doors, gathered employees and read an official notice Oct. 10, 1991.

“We all stood there, stunned,” Teas said in a recent interview. “I looked at Norm and Lucille, and I put my arms around them. It just seemed the right thing to do at the moment,” he said.

Teas, who in 2007 led a group of business people in the founding of The Nashua Bank, of which he was named president and CEO, took the events of Oct. 10, 1991, particularly hard; his maternal grandfather, Robert J. Cross, was a well-known city banker and Nashua Trust president, CEO and board chairman for close to three decades.

Twenty-two at the time, Teas remembers flashing back several years to the day he and his younger brother Robert were shooting hoops in their driveway and Cross drove up.

“He sat us down and said he had something important to tell us,” Teas said. We said ‘sure, what is it?’ He told us that next week, Nashua Trust was being bought by Amoskeag Bank, and I remember thinking, ‘OK, so what?’”

Not until five years later, as he stood in the lobby of Nashua Trust, did his grandfather’s words ring true with Teas. “I realized his message that day was the importance of a local bank to a community’s people and businesses; that they count on that local bank,” he said.

In the days and weeks following the 1991 shutdowns, Teas and hundreds of other bankers throughout the state watched developments closely. “One-quarter of (bank) assets in the state failed in ’91,” he said. “New Dartmouth and First NH took over most of the banks, which started a flurry of purchases and name-changes.”

In retrospect, Teas agrees with many economists and bankers that in the mid- to late-1980s, as new construction soared and, seemingly, the health of the economy with it, many bankers began losing focus on the fundamentals of regulated lending. “They were lending 80, 90, even sometimes 110 to 120 percent of project costs,” Teas said. “Everybody was getting into the building industry. There was a handsome profit to be made.”

The state’s banking crisis and its effects can be told through the plight faced by one very local, and very prominent, Nashua family during the boom-to-bust ’80s and early ’90’s.

Rags-to-riches developer and investor Samuel A. Tamposi Sr. and his family were among the region’s largest borrowers in the two decades leading up to the 1991 crash. As the crisis deepened, banks were eager to negotiate with the Tamposi companies and affiliates, which at the time was said to have owed New England lenders more than $100 million.

While there was no evidence of any improper interference in the renegotiation of the family’s debts, a New York Times article reported at the time, regulators and other borrowers nevertheless complained of favoritism because banks were considering enacting an unusually lengthy, four-year-plus moratorium that would allow the Tamposis time to repay their loans and thus, save their giant real-estate empire.

“The story of the rise of the Tamposis and their current plight is a personification of the nation’s banking crisis,” The Times stated.

The blame for what was termed the most significant economic event since the Great Depression was aimed in several directions, from accusations that Roberge, the banking commissioner, didn’t act soon enough to federal and state banking regulators. Many at the time wondered why they and bankers themselves didn’t see the crash coming.

“I don’t think you can blame any one person, or even regulators or the FDIC, although it’s fair to say regulators and the banking industry learned valuable lessons from it.”

Dean Shalhoup can be reached at 673-3100, ext. 31, or