Fleet Financial Group, Inc.

50 Kennedy Plaza
Providence, Rhode Island 02903
U.S.A.
(401) 278-5879
Fax: (408) 278-5801

Public Company
Incorporated: 1791 as Providence Bank
Employees: 27,500
Sales: $46.93 billion
Stock Exchanges: New York
SICs: 6712 Bank Holding Companies; 6021 National Commercial Banks

The Fleet Financial Group, Inc., is one of the largest bank holding companies in the United States. Although its lending operations are national in scope, the company’s constituent institutions are concentrated mostly in New York, New Hampshire, Rhode Island, Maine, Connecticut, and Massachusetts. As a bank holding company, Fleet offers a wide variety of financial services, including personal and corporate banking, lending, leasing, and real estate and investment services.

Fleet was formed over a period of 200 years through the amalgamation of dozens of smaller local banks and savings institutions. As a result, the company has an extremely complex but rich heritage. The earliest predecessor of the Fleet companies was the Providence Bank, which was established in Rhode Island in 1791 by a shipping merchant and former Congressional representative named John Brown. He had tried to found a bank seven years before, in the waning years of the War of Independence, but failed to inspire the trust of investors. As it was, the Providence Bank was only the fifth bank to be established in the newly created United States of America.

In 1803, Elkanah Watson, who had been an apprentice in the shipping business under Brown, established his own financial institution, the State Bank of Albany. Watson had served as a soldier under George Washington and as an emissary to Benjamin Franklin in France. Rather than pursue politics, Watson built on his experience with Brown’s shipping company and moved to Holland, where he studied the Dutch canal system. In 1792, after having returned to America, Watson organized a number of inland water transportation systems, including the Western Inland Lock Navigation Company. He continued in these ventures for another eleven years, at which time he reported having a dream about opening a bank. The next morning Watson immediately began drawing up papers to establish the State Bank of Albany. Watson headed the bank until his death in 1842. Throughout its history, the State Bank of Albany financed transportation projects, including the formation of the New York Central Railroad Company, the construction of the Great Western Turnpike (now U.S. Route 20), and a portion of the Erie Canal.

A third predecessor of Fleet Financial was established in 1886 by Samuel Pomeroy Colt, a young man who had been raised by his uncle and namesake, Samuel Colt, inventor of the Colt revolver. After earning his law degree, the younger Colt began a successful career in Rhode Island state politics. He founded the Industrial Trust Company in 1886 as a vehicle for his commercial activities, which included an interest in the National India Rubber Company. While in Europe some years later, Colt noted the European system of branch banking, a system that enabled a bank to conduct business in several areas of a city or county. He brought this idea back to Rhode Island and between 1900 and 1908 purchased 29 smaller banks throughout Providence, with the aim of converting them into branches of his Industrial Trust Company.

Thus, by the early twentieth century, the Providence National Bank, the State Bank of Albany, and the Industrial Trust Company had been established and were prospering. All three institutions survived the Panic of 1907, a disastrous run on banks that collapsed the American banking system. Colt’s Industrial Trust was the first of the three, and the first bank in Rhode Island, to join the new Federal Reserve system. The Providence Bank, which became a national bank in 1865, recorded its first acquisition in 1926, when it took over the operations of the Merchants National Bank, then the largest financial institution in Rhode Island.

The banks plunged into dire straits in 1929, after the stock market crashed. The sequence of bankruptcies destroyed companies and banks alike and continued despite federal seizure of bank assets. Fortunately, the economies of Rhode Island and upstate New York were primarily—and robustly—maritime and agrarian, enabling the banks to remain solvent. In fact, the State Bank of Albany succeeded in growing during this difficult period by taking over a number of troubled competitors.

The banks remained stable throughout the 1930s, but were quickly drawn into a war mobilization economy in 1941. When war broke out later that year, the banks became essential sources for government investment in new factories. At the end of the war in 1945, there was tremendous demand for housing, food, and other goods, and a ready supply of workers returning from combat. The growing volume and velocity of money flowing through the economy fueled the growth of the banks.

However, new demands were put on banks when the areas they served became saturated. Unless they could expand geographically, the banks’ growth would be tied only to local average income growth. Providence National boosted its geographical coverage in 1951 by merging with another major Providence bank, the Union Trust Company. A year later, the company changed its name to Providence Union National Bank and Trust. In 1954, this company completed another merger, this time with the company founded by Samuel Colt, the Industrial Trust Company. The new institution took the name Industrial National Bank, but continued to operate under the original Providence Bank’s 1791 charter. The company remained strongly involved in lending operations to the local jewelry industry, an area in which it specialized.

Industrial National formed its own holding company, Industrial Bancorp, in 1968 (thereby launching the modern fashion of spelling bank with a “c”). The creation of this holding company permitted the institution to skirt regulatory restrictions in the 1956 Bank Holding Company Act that would have precluded the Industrial National Bank from conducting a range of nonbank financial services. The company gained a listing on the New York Stock Exchange on September 18, 1968. Industrial Bancorp changed its name to the Industrial National Corporation in 1970, and began its diversification in 1972, when it purchased New York-based Ambassador Factors. A year later it took over the Southern Discount Company of Atlanta. In 1974 the company acquired Mortgage Associates, a mortgage banking group headquartered in Milwaukee. The man behind Industrial National’s diversification strategy was John J. Cummings, Jr., who believed that there was no justification for perpetuating the distinction between banking and traditionally nonbank financial services.

The State Bank of Albany began a similar transformation in 1972, when it took over the Liberty Bank of Buffalo. Liberty had been established in 1882 as the German-American Bank, but adopted the new name in 1918 amid public opposition to anything “German” during World War I. In fact, the bank was a wholly American-owned institution and had nothing to do with Germany or the war. With this transaction, the State Bank of Albany created a holding company called the Union Bank of New York.

In 1975 a former insurance executive named Peter D. Kiernan assumed leadership of Union Bank, emphasizing the need for better service. Like Cummings, Kiernan hoped to expand the Union Bank’s scope of operations through acquisition. In 1982 he changed the company’s name to Norstar Bancorp. He engineered Norstar’s acquisition of the Utica-based Oneida Bank & Trust Company and carried out the first interstate bank merger in nearly 30 years by acquiring the Northeast Bankshare Association of Maine. In 1983 the company formed the Norstar Bank of the Hudson Valley by acquiring and merging the Sullivan County National Bank, Rondout National Bank, and Highland National Bank. The Norstar Bank of Long Island was formed by the merger of the Hempstead Bank, Peninsula National Bank, and Island State Bank. Later that year the Oneida National Bank and the State Bank of Albany were merged to form the Norstar Upstate Bank Group.

Cummings also branded his company with a new name, adopting the moniker Fleet Financial Group in 1982. He considered the company’s various divisions to be like a fleet of ships, all working in support of one another. The maritime name was popular in Rhode Island, where the local economy depended on fishing and shipping. Cummings retired later that year and was succeeded by the decidedly gruff J. Terrence Murray. As chairman and CEO, Murray continued Fleet’s rapid expansion in order to build the “critical mass” it would need to compete with bigger banks in New York and California. By 1985 the company had 322 offices in 33 states and four foreign countries. That year, after fighting regulatory and legal battles, Fleet established de novo banks in Boston and Hartford. It also acquired First Connecticut Bancorp and Merrill Bankshares, a major Maine bank that had been established in Bangor in 1903.

Meanwhile, Norstar acquired the 102-year old Security Trust Company in 1984 and the Bank of Maine a year later. In 1986 the company established Norstar Trust. After nearly 200 years of operation, Fleet and Norstar began crowding each other’s territory. Murray and Kiernan began informal discussions about merging the two companies.

However, Murray was distracted by a painful investigation of its mortgage lending operation, in which regulators charged that Fleet had taken unfair advantage of the state-run Rhode Island Housing & Mortgage Finance Corporation. The agency had become a major Fleet customer, and, it was charged, Fleet’s relationship with the bank had become so cozy that Fleet’s loan officers were allowed to use agency loans to enrich themselves. More than 250 loans were granted to Fleet employees, and one even went to Murray’s in-laws. But an investigation exonerated Murray and concluded that only 11 of the loans were improper. Still, the debacle exposed Fleet’s capacity for corruption and, more importantly, its lack of effective senior management oversight.

Murray was also suffering from his growing reputation as a ruthless “downsizer.” Indeed, many of the institutions acquired by Fleet were inefficiently run companies with poorly administered data systems. One way in which Fleet was able to derive greater productivity from its acquisitions was to consolidate their administrative positions into Fleet’s existing staff and fold their diverse computer operations into Fleet’s own system. This necessitated firing hundreds of redundant employees, but dramatically increased the profitability of the company’s operations.

Driven by increasing competition from the Bank of Boston and the Bank of New England, Murray and Kiernan finally engaged in serious merger talks in 1987. The merger of Fleet and Norstar was announced January 1, 1988. Although Fleet acquired Norstar for $1.3 billion, Norstar’s Kiernan was named chairman and CEO of the new company, which was called the Fleet/Norstar Financial Group. The merger mania continued in 1988 as Fleet/Norstar acquired the New Hampshire-based Indian Head Banks and began consolidating banking operations in Maine. Kiernan died suddenly on September 14, and, six days later, Murray was appointed to succeed him.

Early in 1989 it was revealed that the widespread slump in property values and poor federal oversight of the real estate industry had caused a serious banking crisis. Hundreds of financial institutions were saddled with billions of dollars in bad debt. One of these was Fleet/Norstar’s chief competitor, the Bank of New England. BNE’s crisis began in 1986 when it outbid Fleet for the Conifer Group, a Massachusetts real estate lender. Conifer’s portfolio was a shambles, riddled with failed or shaky deals. Ironically, in losing its bid for Conifer, Fleet avoided a ruinous liability that, in the end, caused BNE to be seized by the Federal Deposit Insurance Corporation.

By 1990, the FDIC was eager to dump BNE and offered exceedingly generous guarantees against its liabilities. Fleet/Norstar badly wanted to bid for BNE, but lacked the capital of leading contenders like BankAmerica and the Bank of Boston. The leveraged buy-out firm Kohlberg Kravis Roberts also wanted to bid for BNE, but regulators soured on the idea of turning New England’s second largest bank over to a group of corporate raiders. It became apparent that Murray and KKR’s Henry Kravis needed each other, KKR for its money and Fleet/Norstar for its banking expertise. The two groups battled over the terms of their $625 million bid until just five minutes before the FDIC’s deadline. To everyone’s surprise, the Fleet/Norstar-KKR bid won.

Murray immediately launched into BNE’s cost centers, consolidating its data centers with those of Fleet/Norstar and firing nearly half of BNE’s 11,000 employees. What remained was a bank with $15 billion in assets, the most extensive retail branch network in the region, and a large number of stable business loans. Within a year, Fleet/Norstar had rehabilitated BNE and turned a number of nonperforming loans back to the FDIC. The failed bank, which Business Week said had the allure of a toxic waste dump, was profitable sooner than anyone would have imagined.

The BNE takeover enabled Fleet to surpass the Bank of Boston as the largest bank in New England. It also is the nation’s second-largest mortgage banker and its largest student loan processor. As a result of the BNE deal, KKR owns a nonvoting 15.7-percent share of Fleet.

Fleet/Norstar reverted to its old name, Fleet Financial Group, in 1992. With much of the real estate crisis and the Northeast’s economic recession behind him, Murray began thinking about further expansion. Unable to wrest further growth out of the region, Murray intimated that Fleet might next turn its attention to the midwest and mid-Atlantic states.

Principal Subsidiaries

Fleet Bank (Long Island); Fleet Bank, N.A., (Connecticut); Fleet Bank—New Hampshire; Fleet Bank—Rhode Island; Fleet Bank of Maine; Fleet Bank of Massachusetts; Fleet Bank of New York; Fleet Bank of New York, N.A.; AFSA Data Corp.; Fleet Associates; Fleet Brokerage Securities; Fleet Credit Corp.; Fleet Factors Corp.; Fleet Finance Corp.; Fleet Investment Advisors, Inc.; Fleet Investment Services; Fleet Mortgage Group; Fleet/Norstar Securities; Fleet Services Corp.; RECOLL Management Corp.

Further Reading

“Fleet Financial, to Lessen Realty Woes, May Sell Third of Non-Performing Assets,” Wall Street Journal, September 17, 1992, p. A3.

“Fleet/Norstar Financial Group, Inc.,” Barron’s, September 11, 1989, p. 20.

“Fleet’s Ship Comes In,” Business Week, November 9, 1992, p. 104.

“Right Time, Right Place, Right Price,” Business Week, May 6, 1991, pp. 26–29.

“Terry Murray’s Regional View,” Industry Week, November 11, 1985, p. 66.

“Unbankerish Banker,” Forbes, July 16, 1984, pp. 123–27.

“Who Was Minding the Shop?,” Forbes, March 10, 1986, p 135.

—John Simley