On March 15, 1991, Blackstone Bank & Trust Co. met the fate of five other Anatomy of a Start-up subjects: it folded.

The Boston bank, which was first profiled here in October 1988 ("The Money Game," [Article link]), was founded on some innovative ideas. Founders Daniel Dart and Ann Hartman, both of whom had big-bank experience, set up operations in a single facility. By keeping overhead costs low, they offered high interest rates to depositors, enticing even out-of-staters to bank by mail. They lent the money to commercial projects in communities that were generally overlooked by established lenders.

What went wrong? "The high rate of interest and the poor rate of return on their loans croaked them, basically," said the Massachusetts banking commissioner, according to an article in The Boston Globe the day after the Federal Deposit Insurance Corp. packed up Blackstone's records. Dan Dart, who resigned as Blackstone's president last fall, adds that the bank received a fatal blow when the FDIC refused to allow it to raise additional capital through a form of subordinated debt securities back in the spring of 1989, then turned around and demanded it do so a year later. By then New England's banking situation had deteriorated so much that Blackstone hadn't a prayer of finding $2 million in new equity.

Blackstone's deposits were bought by BayBank Boston for the nominal sum of $1,000, and the FDIC assumed its loans. n

-- Leslie Brokaw