In search of the right scale

MAKING DEALS: Although Starkweather & Shepley Insurance Brokerage President and CEO Natale Calamis says that the firm is taking a breather, it has acquired 16 other brokerages in the seven years through 2016. / PBN FILE PHOTO/MICHAEL SALERNO
MAKING DEALS: Although Starkweather & Shepley Insurance Brokerage President and CEO Natale Calamis says that the firm is taking a breather, it has acquired 16 other brokerages in the seven years through 2016. / PBN FILE PHOTO/MICHAEL SALERNO

Editor’s note: In celebration of Providence Business News’ 30th anniversary, staff writers and contributors examined the stories and trends that defined the region’s business scene for the period.
Today’s financial services industry in Rhode Island looks much different than it did three decades ago.

A flurry of bank mergers and acquisitions during the 1980s and ’90s eliminated names that were once industry giants. In 1991, the collapse of a private insurer covering deposits at 45 credit unions cut about 300,000 depositors off from $1 billion of their money. The result of those two series of events is the reduction of Rhode Island-based banks and state-chartered credit unions to nine.

More recently, the global financial crisis of 2008 resulted in a number of new regulations for the industry. And the rise of mobile and financial technology, along with the increasing threat of cyberattacks, has shifted the way financial institutions interact with customers and think about security.

Still, there are aspects of Rhode Island’s financial-services industry that remain constant, thanks largely to its size.

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“Rhode Island is unique because once you go small, things change,” said Michael D. Ice, professor of finance at the University of Rhode Island. “Relationships become more critical, bankers are competing with their neighbors and their friends.”

In the banking industry, many of the individual players have been in the game for years, but the names of the banks have changed. Bank of New England, Bank of Boston, Fleet Financial Group, Old Stone Bank – these were former industry giants that no longer exist.

Instead, the state’s banking landscape comprises a number of nationwide banks along with the nine Rhode Island-based banks, headed by Citizens Financial Group Inc.

The Providence-based bank, with $138.2 billion in assets, took part in the merger-and-acquisition activity in 1988 when it joined Royal Bank of Scotland PLC of the United Kingdom. But it has come full circle and in 2015 became independent from its former British parent. In 2016, the bank announced it would build a new 420,000-square-foot corporate campus in Johnston, further solidifying its future in the Ocean State.

The ’90s merger mania resulted in the birth of a new bank, Bank Rhode Island, which bought up a number of branches that Fleet was forced to sell off after its acquisition of Shawmut. Bank Rhode Island was subsequently acquired by Brookline Bancorp Inc. in 2011.

Bank of America Corp. entered the market when it acquired FleetBoston in 2003. And Pennsylvania-based Sovereign Bank – which entered the New England market in 2000, was absorbed by Spain’s Banco Santander SA in 2008.

Today, Citizens leads the deposits market in Rhode Island with 36.7 percent of market share. Bank of America is second with 26.6 percent followed by The Washington Trust Co., (9.6 percent), Santander (8.3 percent), Bank Rhode Island (5.3 percent) and BankNewport, (3.7 percent).

Washington Trust has tripled its slice of the market in the last two decades, which Edward O. “Ned” Handy III, president and chief operating officer, says is indicative of the bank’s growth strategy.

“It almost feels like that while the industry changes, to some degree, we stay the same,” he told Providence Business News.

Washington Trust, with $3.7 billion in assets, was founded in 1800 and is the largest state-chartered bank.

Banks, however, are not the only financial institution to see change. Credit unions are a shadow of what they were three decades ago.

A large reason for that change can be traced back to 1991, when Heritage Loan and Investment Co., a small institution of $22 million in assets located on Federal Hill in Providence, was seized by regulators. After more than 17 months on the lam, its president, Joseph Mollicone Jr., was arrested and eventually convicted of embezzling more than $12 million.

The R.I. Share and Deposit Insurance Corp. subsequently went into receivership after spending all its money to pay off Heritage depositors, leaving barely anything in its reserves to back up the 45 state-chartered financial institutions it also insured.

In December 1991, the then-governor-elect, Bruce Sundlun, ordered all RISDIC insured institutions closed, cutting off 300,000 depositors from $1 billion of their money. After thousands gathered to protest, the state floated $700 million in bonds to make amends, but the damage was done and a number of General Assembly members were unseated in the 1992 election.

Outside of depository institutions, other finance companies, such as Fidelity Investments and FM Global, stand tall in the local financial-services industry. Fidelity, the Boston-based mutual fund company and Rhode Island’s top brokerage firm, employs about 3,900 people locally.

FM Global, the state’s top private company, ended 2014 with revenue totaling $5.7 billion.

Consolidation is also coming to the insurance-agency sector, with Starkweather & Shepley Insurance Brokerage Inc. on a steady growth trajectory through strategic acquisitions and The Hilb Group of New England jumping up in size by purchasing Gencorp and Cornerstone Goup.

Where the financial-services industry is headed, however, could largely hinge on whether the next generation of financiers join forces. The entire industry is wary about the future of its workforce, which is increasingly aging.

In 2015, the state granted some money to help the insurance industry and the banking industry set up training programs to fill the ranks, which industry professionals hope could help curb the downward trend of ranking members. •

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