Group Ready to Buy N.Y.’s Bowery Bank

A group of investors headed by Richard Ravitch, a New York businessman, has completed negotiations to purchase the ailing Bowery Savings Bank for $100 million, banking sources said Monday.

Bowery, the 18th-largest U.S. thrift and the third-largest savings bank in New York state, will convert from mutual to stock ownership and then be acquired by the Ravitch group, said sources who asked not to be identified.

Ravitch was not immediately available, and a secretary at his New York office said she did not believe that he wished to comment. Alan Whitney, a spokesman for the Federal Deposit Insurance Corp., also declined comment.

Finding a buyer for Bowery, which has $5.4 billion in assets, had been among the top priorities for the FDIC, officials there have said. Under the terms of the Ravitch deal, the FDIC will forgive $171.6 million in certificates that had helped keep the savings bank from failing.

Emergency Aid

Bowery would have had a negative net worth of about $120.7 million at the end of last year had it not been for the government’s net-worth certificates. The certificates, which essentially provided the bank with FDIC-backed capital, are a form of emergency aid that Congress approved in 1982.

Founded in New York in 1834 with $2,020 from 50 depositors, Bowery is one of the nation’s oldest savings banks.

Like many thrift institutions, the bank lost money because it was locked into long-term, low-interest loans but was forced to pay high rates to attract depositors when interest rates soared in the 1970s.

New York’s savings banks previously were barred from selling stock to raise money, since the state constitution prohibited savings banks from being owned by stockholders. After a 1983 referendum, the constitution was amended to allow savings banks to convert to stock and thus be eligible for massive infusions of capital.

The recent sale of control of East River Savings Bank in New York to a private real estate developer was the first to a private party in New York state, officials with the state Banking Department said.

The deal, in which the bank planned to convert to stock ownership, was viewed by federal officials as a possible model for troubled thrifts such as Bowery.

The deal with Ravitch will cost the FDIC less than $300 million, compared to the $1.2 billion that it would cost if the agency had had to close the bank and pay off the depositors, according to the banking sources.