SYNOPSIS
"Howard
Powerless"
The Rise & Fall of the Howard Savings Bank
In
December 1989, the Howard Saving Bank shocked the financial world when
it reported that it expected to report $63.0 million loss for all of
1989. Prior to the report, the bank had reported strong earnings
reports for every quarter since it went public in 1983. The Howard
stock was sent reeling and despite efforts of some outside advisors
and regulators, the bank never recovered and ultimately was closed by
the Commissioner of Banking in the fall of 1992.
Prior
to the report in 1989, the Howard was the largest savings bank in the
State of New Jersey. Founded in 1857, the bank had endured several
wars and financial panics to achieve the status of one of the most
respected financial institutions in New Jersey. For over 130 years,
the Howard ran its operations using a "plain vanilla"
business formula. It paid market rates on its deposits, it placed the
funds in either residential mortgages within the State of New Jersey
or government bonds or high grade corporates, and it stressed customer
service as the center-piece of its success.
But the 1980s
represented perhaps the most unusual decade in the nation's financial
history. The challenge of prohibitive inflation was met by Paul
Volcker, the Federal Reserve Bank chairman who orchestrated the
tightest monetary policy ever witnessed in the USA. Fed funds and the
prime rate posted levels over 20% while long term treasuries topped
15%. In the meantime, President Reagan's conservative political
philosophy liberated financial institutions from years of regulation.
Soon, once cautious banks and insurance companies were venturing into
uncharted waters, many seeking higher returns for their new cast of
stockholders. The decade of the 1980s was also marked by the worst
single day decline in the Stock Market on October 19, 1987. The Dow
Jones Industrial Average lost 22% of its value in that one day,
sending a ripple effect throughout the entire economy.
In 1982, the Howard
Savings Bank elected a new chief executive officer, Donald McCormick.
McCormick was not a savings banker in the traditional sense, having
joined the Howard less than 8 years before being selected CEO. He was
motivated by the new force of Reaganomics, and he quickly seized the
opportunity to take the bank public in 1983. He also set up a number
of subsidiaries whose main focus was on loans financing commercial
real estate construction. In just a few years, the bank went from no
holdings in this category to over $700 million--an amount which
exceeded the bank's 130 years of accumulated surplus. Although these
loans achieved their initial purpose of pumping up the bank's stock
price and quarterly earnings reports, the Howard eventually had to
face the music. When the real estate market soured on the East Coast,
almost all of the Howard's loans became "non performing
assets" or "NPA"s and necessitated charge-offs which
essentially wiped out the bank's surplus accounts.
In the 1980s, the
greed of managers like McCormick caused many bank failures. The
Howard, a success story in New Jersey and US banking history for over
130 years, failed in less than 8 years with McCormick as the leader.
"Howard
Powerless" tells the story of the years leading up to the
McCormick administration. The key executives were John Kress and
Murray Forbes, depicted as "benevolent despots" who
encouraged a comfortable working environment. The Howard was the envy
of the other NJ banks as the ideal place to work. But this "laid
back manner" plus some awkward attempts at transferring power may
have set the bank up to be "used" by the abuse of power.
Such contentment undoubtedly led to the Board of Directors being
lulled into a sense of security. Enter McCormick. Exit the Howard
Bank.
Unlike the Enron and
WorldCom failures of 2002, the immediate source of the Howard's
failure was not multidimensional. Upon investigation, the Howard's
problems stemmed from a misunderstanding of the mortgage market due in
part to the fact that virtually no experienced lending officers sat on
the Senior Lending Committee.
Employees
and stockholders of the Howard were nonetheless shocked and dismayed
by the virtual overnight failure of the bank. Although the period saw
many financial institutions in the USA fail, the Howard demise seemed
to be one of the least expected. The precipitous decline in the Howard
common stock gave investors little time to exit the stock and most
received less than $1 per share in the ultimate settlement from the
State of NJ.
AUTHOR BIO
Following
graduation from Nutley High School NJ in 1956, Paul A Luscombe entered
Lafayette College and eventually graduated with a BA in Philosophy in
1960. While at Lafayette, Paul was active in journalism and
publications. He was managing editor of the school's student
newspaper, which was published twice a week. He also was business
manager of the yearbook. As an alumnus, Paul has written for The
Lafayette Alumni News for over 42 years. He recently received
the school's William Hughes award in recognition for his writings on
behalf of the Class of 1960.
After
Lafayette, Luscombe received his MBA in Finance at the Wharton
Graduate School (Univ. of Pennsylvania). At Wharton, he was the
editor-in-chief of the Wharton Advocate, the student
newspaper publication. Then Luscombe embarked on a 37 year career as a
bond salesman on Wall Street. He held the title of Senior Vice
President of Morgan Stanley & Co. when he retired from his 60th
Floor Office at the World Trade Cernter in 1999.
Paul
and his wife Cinnie recently celebrated their 38th wedding
anniversary. They live in Chatham NJ and they have two daughters
(Alison and Priscilla).
Luscombe
made his debut in the published literature area with his book entitled
"Play the Game Right"--the Biography of Butch van
Breda Kolff. Almost a year later, he published Give Dad
a Mulligan!, a collection of short stories about golf and the
use of Mulligans. He has just published his third book entitled "Howard
Powerless"--The Rise & Fall of the Howard Savings Bank,
in the summer of 2003.
ORDERING
INFORMATION
|
Purchase
your copy securely online or
call us toll free at 1-800-247-6553
|
HOWARD POWERless
The Rise & Fall of the
Howard Savings Bank
PAUL
LUSCOMBE
PAL
Publishing
Secure
Shopping Cart
Book Price:$30.00 US
$42.00 CAN
264 pp, hardcover, ISBN:
0-9704372-1-8
|
|
