It was no surprise last week when Sovereign Bancorp of Wyomissing, Pennsylvania announced it planned to become Rhode Island’s, and much of New England’s, big/little bank, combining the familiarity of community banking with the technology of mega banking. “We combine the best of a small bank with the best of large banka large full service bank with a full service touch,” explained Sovereign’s chief executive officer, Jay Sidhu, at a Boston press conference officially introducing Sovereign as the buyer of 278 Fleet/BankBoston branches. Fleet/BankBoston were forced to sell those banks to satisfy antitrust concerns as they sought – and now have received — federal approval for their merger.
All 50 branches that were to be sold in Rhode Island went to Sovereign, with none left for purchase by community banks. In Massachusetts 28 branches were left out of the purchase to be sold to community banks. The deal has been approved by the Judiciary, has met all federal approvals, with the exception of the Office of Thrift Supervision, which is expected to give its blessing in January.
Rhode Island's Market Has Changed. Developers, Builders, Investors and Sellers Must Change With It.
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In describing what will become a Boston-based Sovereign Bank of New England, a small and medium sized lender that has the feel of a community bank and the resources of a larger one, Sidhu seemed more to be describing a direct competitor to Citizens Bank than to the Fleet/Bank Boston combination. FleetBoston, which is the name initially given the combined bank, will become the eighth largest bank in the nation. Citizens has long promoted itself within a niche of providing that “full service touch” that Sidhu described, with the technological amenities of a larger institution, also described by Sidhu.
Even as details of the $1.4 billion transaction unfolded, several questions remained unanswered. Paramount, of course, is what comes next.
“The game isn’t over,” said economist Gary Ciminero, who once served as chief economist at Fleet. “As far as attractive to a potential buyer, the very pluses that give Sovereign a broader geographic reach increases its desirability to a larger acquirer. It becomes a bigger plum, and not of such a larger size that it couldn’t be swallowed.”
Sovereign, 17 months ago, acquired 104 bank branches in Pennsylvania and New Jersey as part of First Union Corp.’s takeover of CoreStates Financial Corp. The 278 branches involved in the latest transaction nearly double Sovereign’s number of branches. It currently operates 310 community banking and loan offices in Pennsylvania, New Jersey and Delaware.
The bank will grow from $24.6 billion in assets to more than $30 billion, according to Sidhu, and pegged at $37 billion by one source at Fleet/BankBoston.
Other items that were still unclear:
What will happen with all Rhode Island employees? While Sovereign is buying all the Rhode Island branches, the consumer lending business in Providence, and the call center in East Providence, some of the back line support that has been in Rhode Island will be moved to Dorchester. While Sidhu indicated the bank would hire 3,500, Joe Campanelli, who will become Sovereign Bank of New England’s president, offered no guarantees. “Part of the attraction was a good employee base,” Campanelli said in an interview with Providence Business News. We’ll work with Fleet to make sure that we retain as many valuable employees as we can.” Insiders at BankBoston/Fleet said employees are hopeful since when Fleet initially announced the merger it anticipated a reduction of 5,000 positions. Through attrition and what a bank source said were “job pauses” in key areas, some 2,000 jobs may have been saved.
The final status of the four buildings off Kennedy Plaza in Providence that are owned by Fleet and BankBoston. Each owns two buildings. Campanelli said the new bank plans to occupy a significant portion of the Old Hospital Trust Building. Fleet will still require significant space since it will still have 48 branches in Rhode Island, 76 on-site ATMs and 44 off-site ATMs, and has not given up any of the businesses it currently operates here. Additionally, BankBoston’s Private Bank, which is also in Providence, was not part of the deal. It is currently housed in BankBoston’s newest tower. It is uncertain whether that business will be merged with Fleet’s Private Bank.
But most challenging of all over the next several months will be the bank’s ability to become a household name. Between now and April when Sovereign hopes the deal is complete, the bank will be challenged with trying to establish its identity in the region.
It will seek to differentiate itself from the variety of community banks now serving many New England communities, and that thrive on what they say is their individual service to customers.
And it will strive to differentiate from Citizens Bank, which has established its name and which operates on a similar premise to what Sidhu promised for the new Sovereign Bank of New England.
FORMELY THE RHODE ISLAND HOSPITAL TRUST Bank’s downtown headquarters now used by BankBoston, but building’s future status remains to be settled.
“It’s our vision that within a short period of time New Englanders will find Sovereign Bank a New England household name,” Sidhu said.
Campanelli said the job began the day after the press conference with a general letter to employees and the 700,000 customers it hopes to retain. Since the deal won’t be completed until spring, the bank was working with Fleet to determine ways it could promote itself in the interim period.
Meanwhile, Campanelli said the bank needs to become a “strong corporate citizen,” becoming part of the community. “We’ve seen other banks make decisions from afar. You need to be part of the community to make those decisions.”
But he’ll have a hard time, at least for now, convincing some of his competition that Sovereign has a local flavor.
“We had hopes originally that we would have been able to buy part of that (the branches), but I guess, if we had a choice we’d just as soon have somebody from significantly outside our area become a competitor,” said John Warren, chief executive officer of Washington Trust Bancorp.
“In the world of anything, nothing is a sure thing until it’s done,” he said. “There will be some great opportunities for Bank Rhode Island and Washington Trust over the next six months for sure, and even after that. It will take them awhile to fully integrate.”
“From Rhode Island’s standpoint, Bank Rhode Island feels particularly well positioned,” said Merrill Sherman, Bank Rhode Island’s president. “An out of region thrift without a lot of name recognition. Our hope and expectation is this will be a particularly productive year to year and a half for us.”
Both Warren and Sherman are banking on customers choosing to leave an unfamiliar bank, avoiding the new FleetBoston and doing their business with a community bank.
“Fleet is very savvy in the way they do their business,” said Sherman’s, whose own Bank Rhode Island was formed from the Shawmut branches Fleet had to sell when it acquired that bank. “What they’ve done is kind of picked the franchise apart. They’ve taken various elements out because clearly they’re trying not to help their competitor.”
One of those elements that was left out of the transaction was BankBoston’s Private Bank. Campanelli said Sovereign is “looking at ways at creating a trust business line” and is in discussion with private vendors to create a “joint venture.”
But when Sovereign gets its trust department going, it will find a new competitor in Providence, Washington Trust.
“We’re two months away from opening a Trust operation in Providence,” Warren said. “It’s a big big plus for us. We wanted to make sure Rhode Island customers had a choice with Fleet/BankBoston merging their private banks. It’s a perfect opportunity to come to Providence and give people a choice.”
Sovereign hopes it will be giving Rhode Islanders a choice, and a return to what Campanelli and one BankBoston employee calls Hospital Trust sales oriented culture.
“When you think about what has happened here in the last two years two years ago we had a redesign, analyzing the business, exiting those businesses that were not producers,” a BankBoston employee said. “A year ago this past August we started the whole conversion, when we changed everything to BankBoston. Six months later they come out with this Fleet-BankBoston merger. The last two years a lot of initiatives have taken (their) toll. With all these initiatives you miss keeping the eye on the ball. For the future, people are looking forward to a new challenge.”
