"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.

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 Reagen'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 Reagonomics, 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.