The first in a series of newsmaker interviews with business community leaders focusing on the state’s budget deficit and the economy.
Washington Trust Co. Chairman and CEO John C. Warren leads the second-largest bank based in Rhode Island, with $2.4 billion in total assets. Since he was appointed chairman in 1999, he’s overseen four acquisitions, including the most recent 2005 purchase of Weston Financial Group Inc.
Warren spoke with Providence Business News recently about the national economic climate and how the Ocean State is faring.
PBN: What’s the state of the U.S. economy now?
WARREN: There’s no question the economy is struggling. Everybody seems to be concerned with asking if we’re in a recession. I think the evidence of what we’re seeing and what’s going on is that the economy is weak enough – whether we’re growing by 6 percent of shrinking by 6 percent – that it is underperforming significantly and is causing problems across the board.
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PBN: How are those national trends affecting Rhode Island?
WARREN: I think Rhode Island, in so many ways, mirrors the national economy. We don’t have a sector of our economy that’s overly weighted, like, let’s say technology … I think bits and pieces of what’s going on everywhere – from $3-plus for a gallon of gasoline to $3-plus for heating oil and problems in the real estate market – all of that impacts our economy. Just the slowdown impacts the economy in Rhode Island.
And of course in Rhode Island we have a significant budget deficit that we’re dealing with. That’s a challenge as well.
PBN: You mentioned a recession. Is it too soon to tell if Rhode Island is in a recession?
WARREN: I think you always have to smile because the official economist can’t tell you if you’ve been in a recession until you’re basically out of the recession. It takes months and they have to look back and see the economic data to make those determinations. That’s why I made the comment. We’ve got a problem economy nationally and it’s certainly a very slow economy in Rhode Island. It doesn’t matter whether you use the “R” word. It’s a troubled economy and not one that is a positive for anybody out there.
PBN: How is The Washington Trust Co. weathering the climate?
WARREN: Washington Trust is really a Rhode Island bank, so the strength of the economy in Rhode Island is exactly what we will feel. To the extent that it’s slower, we will feel that as well.
It’s been an interesting spectrum, because we’ve seen a continued demand on the commercial-lending side and the commercial real estate side. We’ve actually seen a reasonably good demand on the residential-loan side and in part, I think, it’s because on the residential side we’ve seen so many of the mortgage-banking operations close up shop. They’ve just closed down, taken their shingle down. When the good times rolled anyone could put out a shingle, but now that it’s a little bit rougher [buyers] want to count on the fact that when it’s time to close their mortgage and buy their house, somebody is going to be there. They tend to know that Washington Trust is going to be here 60 days after they sign a purchase- and-sales agreement.
PBN: Aside from Washington Trust, how will Rhode Island’s work force fare?
WARREN: Recently there were some statistics showing that we’ve lost a few jobs in Rhode Island. I think there’s a challenge economically for the work force. If you look at somebody paying $3 for a gallon of gas – as I said – it really churns up any money they have in their pocket.
The economy in general is sort of struggling a little bit and it causes everything to back off. And it spills over. If you talk about the slowdown in residential real estate construction, that means that the plumbers, the electricians, the carpenters, the amount of activity out there is down a couple of notches. The amount of money they’re going to have in their pocket is a little less than it was a few years ago.
PBN: Aside from mortgage lenders, what other business sectors are being hit the hardest?
WARREN: You’re seeing some situations, some of the announcements – when you see a job layoff or move – that some manufacturing is going overseas. In Westerly, we’ve seen a couple of textiles businesses announce layoffs and those too are going overseas. It’s a challenge.
PBN: What sectors are doing the best?
WARREN: Certainly on a global front, the international economy is still doing very well. It’s certainly slowing in spots, but in infrastructure – look at the growth in the Far East – there’s a tremendous amount of growth. At least for a while, that’s going to be continuing.
PBN: Back to Rhode Island, the state is struggling with a budget deficit. How will that affect local businesses, including Washington Trust?
WARREN: It’s a huge number of dollars and relatively speaking we’re a small state and our budget is not huge. Look at the gross budget and then look at the shortfall, just what we have to figure out between now and June 30 – the current fiscal year – and then the magnitude of the deficit going forth into next year. Just look at all the proposals that the governor has put forth. But the real answer is that because of the magnitude of that there are pieces in every sector in the state that are going to be affected by this. They’ll be affected by the budget cuts because there’s fewer dollars in the economy. •
interview: John C. Warren
POSITION: Chairman and CEO, Washington Trust Bancorp Inc., parent of The Washington Trust Co.
BACKGROUND: Warren spent 15 years with Shawmut National Corp., holding positions that included senior vice president – capital markets. In 1988 he was named president of Sterling Bancshares. In 1996, he came to The Washington Trust Co. as president and COO. In 1997, he was promoted to CEO. In 1999, the bank appointed him chairman.
EDUCATION: B.A. in history, Yale University, New Haven, Conn. 1967; Program for Management Development, Harvard Business School, 1987.
RESIDENCE: South Kingstown
AGE: 62
