Bank of Boston Corporation

100 Federal Street
Boston, Massachusetts 02110
U.S.A.
(617) 434-2200

Public Company
Incorporated: 1970
Employees: 20,200
Assets: $34.12 billion
Stock Index: New York Boston

The Bank of Boston’s history is older than that of the Constitution of the United States, and its story is a long and distinctive one. From uneasy beginnings in post-Revolutionary America, it has become a super-regional bank that is currently challenging the traditional dominance of New York’s money center banks.

Bank of Boston traces its roots back to the Massachusetts Bank, which was founded in 1784. Its progenitors were Boston import-export merchants who were tired of having to deal with British banks when sending money to distant places. The bank was the first bank in the city of Boston and, indeed, the only one until 1792, when the Union Bank was founded and Alexander Hamilton’s Bank of the United States opened a branch in Boston.

From the start, the Massachusetts Bank’s strict lending policies and conservative ways made it no friends among consumers, who had few alternatives in seeking credit. It not only didn’t pay interest on customer deposits, but it even charged a fee for keeping them at one point. But times were uncertain at best during the early years of the Republic; a complete overhaul of the federal government, Shay’s Rebellion, the War of 1812, and the ensuing two-year depression all happened within 30 years of the bank’s founding. The Massachusetts Bank weathered each of these crises, however, and in 1838 its assets amounted to more than $1 million.

When the Civil War broke out in 1861, the Massachusetts Bank was part of a consortium of Boston banks that extended nearly $35 million in credit to the Union government. It also supported the Union war effort by buying $50,000 worth of treasury bonds. A more important development that occurred during the war was the advent of a national banking system, which Congress created in 1864 to make war financing easier through the establishment and circulation of a national currency. True to the Massachusetts Bank’s conservative tradition, President John James Dixwell expressed suspicion about the new system, but saw that if his bank didn’t join, it would fall behind its competition. In 1864 the bank renamed itself the Massachusetts National Bank of Boston.

By 1884, there were 59 banks in Boston besides Massachusetts National, and the competition was so fierce that it could not afford to maintain its cautious ways and expect to survive. And yet the bank did just that. As a result, however, its annual profit declined from a record $250,038 in 1873 to $70,000 by the end of the century.

Near the end of the 19th century, Boston’s banking industry also underwent a wave of mergers, the most important of them engineered by the Shawmut National Bank and the investment banker Kidder, Peabody & Company. In reaction to this development, Massachusetts National decided to merge with the First National Bank of Boston, which had openly defied Shawmut National’s power play, in 1903. First National had been founded in 1859 as Safety Fund Bank, changing its name in 1864 when it joined the national bank system. The new institution bore the First National name, and although Massachusetts National President Daniel Wing stayed on as president, First National President John Carr became chairman of the board.

The First National Bank of Boston prospered under the guidance of Daniel Wing. When World War I broke out in 1914, the bank took little notice—the United States was still a nonbelligerent and Europe seemed far away. The big event of 1914 for the bank was its participation in the new Federal Reserve system; it purchased 6,000 shares of the Federal Reserve bank’s capital stock and purged its own board of directors of members involved in securities dealing and investment banking, in compliance with the Federal Reserve Act. In 1915 the bank extended $1 million worth of credit to the British government and made a $5 million loan to Russia the next year. Early in 1917, despite the fact that the distant clash of war was getting closer, the Bank of Boston opened its first overseas office, in Buenos Aires. Once the United States formally entered the war later that year, the bank did its part by purchasing a large quantity of war bonds from the U.S. Treasury.

To say that the Bank of Boston grew and prospered during the boom years of the 1920s would be an understatement. The bank made its first substantial plunge into retail banking in 1923, when it acquired the International Trust Company. By 1924, the bank had grown to many times the size it had been before World War I. It employed 1,657 people, compared to 152 in 1908; its capital stood at $15 million, compared to $2 million; and its loan volume had grown to $222 million, from $28 million.

Despite the October stock market crash that threw the financial community into a panic, 1929 was a prosperous year for the Bank of Boston. Either the directors did not recognize the severity of the crisis right away or they were confident that the bank would withstand it, because they authorized the acquisition of Old Colony Trust Company late that year. And in 1931, the bank bought out the Jamaica Plain Trust Company. Bank of Boston survived the Depression in relatively strong condition, although it cut its dividend continually until 1937. It was also forced to divest its investment-banking arm, the First Boston Corporation, after the passage of the Glass-Steagall Act in 1933, which prohibited commercial banks from engaging in investment banking and securities dealing.

Rumors of war once again emanated from Europe at the end of the 1930s. As in 1914, the Bank of Boston took little notice except regarding the matter of outstanding loans to German interests. As the Nazi government in Germany prepared for hostilities, concerns arose that the bank would not be able to collect from its German borrowers. W. Latimer Gray, head of Bank of Boston’s foreign operations, went to Germany himself in the summer of 1939 to secure repayment. Gray had met many prominent Germans in the course of his business dealings, but found himself trailed by Gestapo agents during his trip. He and his wife left the country just before the invasion of Poland, carrying with them a draft on Britain’s Midland Bank for $500,000, enough to cover the Bank of Boston’s loans.

During World War II employees left to join the military and the bank extended emergency credit to the federal government to help finance military orders, but these things were a matter of course for every major American bank during the war. In 1945, with the end of the war in sight, the Bank of Boston acquired the First National Bank in Revere, Massachusetts. Once the war ended the bank went about expanding as before, opening a branch office in Rio de Janeiro in 1947.

By 1950, Bank of Boston’s assets totalled more than $1.5 billion. The bank continued to prosper during the decade and its foreign business expanded. Factoring—the practice of buying accounts payable from merchants and assuming responsibility for their collection—also became a substantial part of the Bank of Boston’s business during this time. In 1959 the bank posted record revenues of $20.4 million. It was also one of the few American banks to withdraw its assets from Cuba before Fidel Castro nationalized that nation’s banks.

In the early 1960s, the Bank of Boston internationalized its factoring operations. In 1961 the bank’s newly formed subsidiary, Boston Overseas Financial Corporation, joined with British merchant bankers M. Samuel & Company and Tozer, Kemsley & Millbourn to form International Factors, Limited. The next year, Boston Overseas Financial expanded its factoring business to the Netherlands, Switzerland, Australia, and South Africa. The Bank of Boston increased its international presence even further in 1964 when it opened a branch office in London.

The First National Bank of Boston continued to prosper through the 1960s, although its financial performance suffered somewhat late in the decade when high interest rates, caused by inflation and increased demand for credit, caused it to take losses on its bond holdings. By 1970, it had acquired a reputation as a creative lender that was always willing to find unconventional solutions to problems of finance. Serge Semenenko, the flamboyant Russian-born head of the semi-autonomous special industries department, contributed substantially to this image. Hilton Hotels, International Paper, The Saturday Evening Post, and Warner Brothers Studios were among his many clients.

In 1970 the Bank of Boston reorganized under the name First National Boston Corporation. From there, the bank embarked on a string of acquisitions of Massachusetts banks in an effort to become a regional powerhouse. In 1982, reflecting the new prominence that large regional banks would soon have in the national banking arena, the bank renamed itself Bank of Boston National Association. In 1985 Bank of Boston moved to solidify its grip on New England with the acquisition of Waterbury, Connecticut-based Colonial Bancorp, and followed in 1987 with the purchase of BankVermont Corporation. Its aggressive lending policies also helped spark Massachusetts’ much-heralded economic revival in the 1980s, when the bank made substantial loans to high-technology concerns like Wang Laboratories and Data General Corporation. And it did a good job of dodging the Third World debt crisis in 1987 by writing off nearly two-thirds of its loans at the first sign of trouble.

At the same time, however, the Bank of Boston developed a reputation for aloofness, even arrogance, during the 1970s and 1980s. One incident that contributed to this perception occurred in the mid-1970s, when the city of Boston underwent its worst fiscal crisis since the Great Depression and turned to the bank for help. Although the Bank of Boston eventually bought the city’s notes as requested, many city officials bristled at the bank’s demands, including an unsuccessful insistence that the state guarantee certain city debts. For several years thereafter, Boston City Hall pointedly chose Morgan Guaranty Trust, a New York investment bank, as its underwriter. The Bank of Boston was also known for its unwillingness to discuss its lending practices and local affairs with community activists. “They just project an elitist, uncaring attitude,” a spokesman for a rival bank told Business Week in 1985.

But the worst public relations disaster of all for the bank came in 1985, when the Justice Department charged that the Bank of Boston had processed more than $1.2 billion worth of cash transactions between 1980 and 1984 without reporting them to the Treasury Department as required by a federal law designed to prevent money laundering. The accusations stemmed from an investigation of Gennaro J. Angiulo, the alleged head of New England’s largest organized-crime family. Federal investigators found that Angiulo and his associates had made a habit of walking into a Bank of Boston branch in Boston’s North End with paper bags full of cash and exchanging them for cashier’s checks. They also found that the bank had not reported large shipments of American currency to and from Swiss banks. At first, Bank of Boston denied any wrongdoing in the Angiulo affair and CEO William Brown charged that it was the victim of misrepresentation in the press. Later, once the evidence came out, Brown was forced to admit to “poor judgment” on the part of lower-level employees; the bank pleaded guilty to the Justice Department’s charges and paid a $500,000 fine.

The Bank of Boston seems to have recovered from the Angiulo affair, but the fiasco raised serious questions about the way the bank was run under William Brown and his predecessor, Richard Hill. It will be up to Ira Stepanian, who succeeded Brown as chairman and CEO in 1989, to repair any remaining cracks in the Bank of Boston—such as a $300 million loss in the last quarter of 1989, due in large part to bad property loans—and keep it on track as one of the powerful new breed of super-regional banks in the 1990s.

Principal Subsidiaries

First National Bank of Boston; Bank of Boston International—New York; Bank of Boston International—Los Angeles; Bank of Boston International South—Miami; Bank of Boston Trust Company (Bahamas) Ltd.; Bank of Boston, S.A. (Luxembourg); Boston Overseas Financial Corp.; Mortgage Corp. of the South; First National Bank of Boston (Guernsey) Ltd.; Bank of Boston—Barnstable, N.A.; Bank of Boston—Connecticut; Bank of Boston—Berkshire, N.A.; Bank of Bristol, N.A.; Bank of Boston—Middlesex; Bank of Boston—Norfolk; Bank of Boston—Western Massachusetts, N.A.; Bank of Boston—Worcester, N.A.; Bank of Boston Trust—Arizona; Bank of Boston Trust—Southwest Florida; Bank of Boston Trust—Southeast Florida; Old Colony Trust— South Carolina; Boston Financial Ltd.; FNBC Acceptance Corp.; FNB Financial Co.; FNB Services, Inc.; Firstbank Financial Corp.; Randolph Computer Corp.; First of Boston Mortgage Corp.; First Capital Corp. of Boston; First Venture Capital Corp. of Boston; First National Boston (Hong Kong) Ltd.; First National Boston Clearance Corp.; Boston Trust & Savings Ltd.; Boston Investment & Financial Services S.A. (Switzerland); Nigerian-American Merchant Bank Ltd.; Boston Location, S.A. (France); Boston Credit-Bail, S.A. (France); Boston Bank Cameroon; Banco de Boston Dominicano, S.A.; Casco-Northern Corp.; FBC, Inc.; First National Boston Mortgage Corp.; First of Boston Information Services Inc.; Sociedad Anonima de Servicios e Inversiones: World Trade Group, Inc.; Bank of Boston Canada; Boston Factors of Canada, Inc.; Bank of Boston Trust Co. (Cayman Islands) Ltd.; Corporation Internacional de Boston S.A. (Costa Rica); Boston Leasing Italia S.p.A. (Italy); Boston International Finance Corp. N.V. (Netherland Antilles); Boston Leasing Ltd. (U.K.); First National Boston Ltd. (U.K.); International Banking Facility—Boston; Great Atlantic Trust Co. Boston, S.A.; First Leasing & Finance, Ltd.; First Capital Corp.; RIHT Financing Corp.; Stockton, Whatley, Davin & Co.; FSC Corp.; FNBC Realty.