TWO years ago, the Bank of Boston was mired in trouble.
The battered New England economy had lost hundreds of thousands of jobs and many commercial real estate loans had gone sour, leaving the bank with $2 billion in nonperforming assets. Similar problems had led to the federal takeover of the rival Bank of New England.
Determined not to follow the same path, the Bank of Boston attacked its problems head on.
"We dealt aggressively with them and we dealt early," says chief executive officer Ira Stepanian. "For that reason we turned around sooner" than other banks in the region.
Behind the turnaround was a series of difficult decisions: a rapid sell-off of problem assets in a weak economy, cutting costs and 3,000 jobs, and continuing to invest in Latin American subsidiaries.
Now the nation's second-oldest bank, chartered in 1784, is on an upward course:
* Its stock price has risen from $3 a share to $24.
* Earnings have rebounded from a $27 million loss in 1991 to a $263 million profit for last year.
* Last week Moody's Investors Service upgraded the bank's debt ratings, citing improvements in the capital-to-asset ratio, profits, and loan quality. (Nonperforming assets are now about $700 million, or less than 4 percent of the total.)
* Higher capital reserves have also allowed the bank to lend more aggressively in a region where businesses have complained for several years of a "credit crunch." Since the launch of a "credit initiative" last May, new loans worth $2 billion have been made to 1,200 New England businesses.
From their offices overlooking the city, Mr. Stepanian and president Charles Gifford describe the bank's recovery and its current challenges.
"What this bank is really good at is that when we set a goal, we make that goal," Stepanian says.
To speed the disposal of commercial real estate assets, Mr. Gifford chaired meetings of a task force that met each morning at 7 o'clock.
Gerard Cassidy, a banking analyst with the investment house Tucker, Anthony, applauds the rapid response: "Their attitude was never ... `let's wait until the economy becomes stronger'.... The Bank of Boston has to be recognized as one of the leaders in the turnaround category."
The bank also focused on trimming noninterest expenses. Fourth-quarter expenses, for example, fell from $360 million in 1990 to $286 million in 1991, rising to $311 million last year. The recent rise stems from overseas expansion and salary increases.
Stepanian says the decision to keep investing in the bank's Latin American operations was "particularly difficult" at a time when the bank's core operations in New England were struggling.
"We've always been strong there," he says of Latin America. The bank opened an office in Argentina in 1917, and operates full-service banks in that country, Brazil, Chile, and Uruguay with total assets of $4.1 billion.
"The economies there have taken off, particularly in Argentina and Chile," adding substantially to the recovery of the Bank of Boston's bottom line.
Mr. Cassidy notes that the bank's mortgage-lending subsidiary, based in the Southeastern US, has also been turning in good results, aided by low interest rates and a wave of refinancings.
"This is a very complex and diversified company," Stepanian says. The Bank of Boston's corporate lending includes financing communications and cable television projects across the country. The bank also has offices in Europe and Asia.
Meanwhile, the bank has been acquiring smaller banks near its home base. Cassidy says the bank must become more efficient at consolidating acquired banks under its wing.
A BROADER challenge facing the whole banking industry is the encroachment of nonbank financial companies that offer loans, checking accounts, and other services without the burden of federal regulation and deposit-insurance premiums.
Stepanian sees the Bank of Boston holding its ground by building on its reputation for high-quality service, profiting from its well-known name, and continuing its investments in technology and employee training.
The company is introducing its own line of mutual funds this spring. Cassidy says banks have been moving to offer stock and bond funds as a defensive measure; many customers want mutual funds as replacements for bank certificates of deposits in the current environment of low interest rates.