Merger of 2 Big New England Banks Called Imminent

Bank of Boston Corp. and Shawmut National Corp. are close to a merger that would create the largest bank in New England, a source close to the negotiations said Friday.

Talks between the banks have been going on for some time, but spokesmen for both declined to comment.

“A merger is imminent,” the sources said. “It could be two weeks away.”

Earlier this year, Fleet Norstar Financial Group of Providence, R.I., acquired most of the assets of failed Bank of New England to become the premier bank in the region with assets of $32 billion.

Bank of Boston once was the leader. As of the end of 1990, it had assets of $32.5 billion. Shawmut, based in Hartford, Conn., had assets of $23.7 billion.

The Boston Globe reported that Bank of Boston and Shawmut are trying to raise about $625 million, in part to lift capital ratios against troubled loans before the deal can be finalized.

The newspaper said this might delay the merger announcement, which had been tentatively scheduled for next week.

The Globe said the deal, as currently outlined, would give Shawmut shareholders about nine shares of Bank of Boston for every 10 shares of Shawmut. The new institution would carry the Bank of Boston name.

A merger would continue a trend in which banks from the same region combine to form a more powerful institution. On Thursday, First Union Corp. of Charlotte, N.C., said it will buy ailing Southeast Banking Corp. of Miami.

The recession hit New England particularly hard, leaving a glut of foreclosed real estate that badly hurt bank earnings.

Bank of Boston has been cutting costs and trimming its payroll, but in the second quarter the bank had a net loss of $49 million, compared to a profit of $3.5 million a year ago.

Shawmut, which owns major banks in Connecticut and Massachusetts, has been troubled by bad loans. Shawmut lost $58.7 million in the second quarter, compared to a profit of $30.2 million a year ago.

To bolster its unsuccessful bid for the Bank of New England earlier this year, the Bank of Boston had lined up several local corporate investors to help finance an acquisition and said it would have issued $1 billion in new securities.

Fleet acquired the Bank of New England from federal regulators who had stripped the failed institution of about $6 billion in bad assets.

The capital infusion for a Bank of Boston-Shawmut deal would be necessary in part to raise capital ratios against about $3 billion in troubled loans, as of March 31.

The string of recent mergers reflects banks’ efforts to improve their competitiveness in the market, bolster capital and achieve economies of scale.