Charting the squalls in the financial markets:

Foul weather sailor Nicholas W. Lazares at Admirals Bank

www.neomagazine.com When the subprime mortgage crisis created the tsunami that flattened financial markets around the world and roiled the seas of money, the man who might have weathered the storm best—certainly with more style--was an old salt at sailing (he’s won the prestigious St. Barths Bucket Regatta) and a stout hand at the tiller during financial squalls and he combined his two passions and took to his boat—literally. by Dimitri C. Michalakis “I’m not really that good at relaxing and so as I began to look at opportunities I found that it... was pleasant for everybody concerned, especially me, to have meetings on board the boat,” says NicholasW. Lazares, now chairman and CEO of Admirals Bank in Boston, then a former chairman and co-CEO of Capital Crossing Bank, which had just been sold to Lehman Brothers before its historic collapse. The boat was the 100-foot Caldera (named after the volcano that supposedly sank Atlantis) and he sailed it that summer of the perfect financial storm on a cruise of the Greek islands and the Dalmatian coast while fieldingbusiness calls about the crisis (and hosting interesting people like Christine Kondoleon, curator of the Greek and Roman collection at the Museum of Fine Arts in Boston) and feasting on feta and grape leaves and pomegranate martinis. “It was a unique way to get back into business,” he now says with a laugh. “But I’m not sure you can run a business from a sailboat. It’s a little bit too much fun.” A specialist in acquiring commercial loans and distressed banks, Lazares is the ultimate foul-weather sailor who has bolstered Admirals bottom line (to over $500 million in assets) while trawling for more (he and his former law partner also own most of the Dunkin’ Donuts franchises in downtown Boston). And he was one of the movers and shakers participating this past summer in the Greek Power Summit in Athens, where he witnessedfirsthand the eye of the Greek financial storm. “If you look back a hundred years at the way my grandparents grew up in Greece and most people grew up in those poor European countries,they didn’t have two television sets and two cars and vacations and this and that,” he says.“They lived a very humble life, and it’s really been only in the past fifty or sixty years that the lifestyle has become relatively speaking so much better. When we were speaking at the conference in June my good friend Chris Walenczak, who is the assistant treasury secretary in Poland, was one of the speakers. He’s a young man but he was fully aware of how people had been living in Poland for many years under Communist rule there and he made the point going around Athens, ‘You know what? This is not a poor country. People are living pretty well.’ And that’s an honest observation. People are living pretty well. The problem is that people are living pretty well but the country was subsidizing them and is now pretty much broke. That cannot go on forever. The party’s over.” Of the Greek banks he says “a lot these banks will need to be recapitalized obviously. I think when we were there speaking at the conference in June essentially all of the speakers agreed that there was a need for a significant cut to the debt. And if you recall in June they were talking about pensions and modifications, but there was no talk about actually reducing the principal amount of the debt. Those of us who aren’t politicians all agreed that that was the only answer—that there had to be a modification of the debt. The way that is was done, frankly, the European community showed a great deal of sensitivity to eliminating uncertainty in the markets, because by making it a voluntary modification they avoided the triggering of credit default swap liability and the limiting of the number of people that would actually turn to the credit default swap route to get cover for their losses. At least the system in general felt comfortable that they understood where the risks were. What happened when the referendum was called was that if Greece can call a referendum on is this good for us, why can’t Germany call a referendum and say is this good for us? It would go on and on. So I think that was a total disaster at that particular moment.” He saysthe banks affiliated with the government will certainly be at risk, and, unfortunately, the business climate in Greece may not improve any time soon. “You know I just came back from a trip to London and Cyprus and I spoke to different people in those countries on the subject of Greek banks,” he says. “And the general climate over there is that it’s probably still not an appropriate time to take much exposure to Greece. Places like Cyprus, which is ethnically Greek at least in the south, has a judicial system that works, and has resources and a different business culture, and so if I were to make a decision today to move some assets to that part of the world I’d probably choose Cyprus over Greece. Obviously there is the political issue with Turkey, but I think there’s enough opportunity presented in Cyprus as an alternative to Greece today. Also,there are opportunities in some of the other Balkan countries which don’t have quite the same level of distress as Greece.” He predicts the uncertainty overall in world money markets may take a while to subside as well because of the interlocking skein of alliances and creditors. “The way the market works isthat insurance companies and others are essentially buying insurance that says if a sovereign or bond issuer, be it a subprime mortgage debt or corporate bond, if that bond issuer defaults then I can turn to my credit default swap issuer and reimburse him for that entity. (A credit default swap (CDS) is similar to a traditional insurance policy which obligates the seller of the CDS to compensate the buyer in the event of loan default.)So what’s really unknown in that murky world is how much of that credit default swap liability sits with international institutions in America, in Europe, and elsewhere. There’s no public market, there’s no public methodology for identifying where the risks lie. So I think when you have uncertainty in a system and you have potentially enormous amounts at stake—what’s happening in Greece, Italy, Spain, and Portugal—they dwarf Lehman Brothers in the aggregate. So it’s not surprising that this stuff has international repercussions.” He says clearly there were excesses in the American banking system, as well, where bankers strayed from their traditional role of lending for business and personal loans for large ticket items such as homes and cars, and instead plunged into risky loans for bigger profits in the sub-prime mess. “That’s where people began to reward those who could build financial models that would demonstrate profitability for the sake of profitability rather than because it was serving some social function. Well, obviously, that didn’t work in the long haul and so the people who did the financial engineering got paid up front and then the banks and the public and the loan holders got stuck with the paper and the people who were living in the homes they couldn’t afford got thrown out and the people who were working in simple positions in the banks and the real estate industry lost their jobs.” He agrees “the greed of Wall Street really engendered some legitimate distaste in the minds of normal working people and caused a lot of problems: a lot of unemployment and a lot of distress and a lot of financial hardship. But I will say, because I’m still involved with a lot of the bigger banks, there is generally a high level of responsibility within the management ranks of major American banks. I think they really understand at this juncture what they need to do to properly reflect their capital positions and I think a lot of the excesses have been wrung from the system.” Today, he says, “credit is readily available to those who are creditworthy and have the ability to repay and have a demonstrated credit history. But the era of easy money is no longer with us.” Will it ever come back again?He laughs. “Of course. These things are cyclical.” Lazares got into banking in the late 1980s after previously working as atax attorney and businessman. “I started this bank and we had some professional bankers running it and it was going to be a little community bank. Then in the early ‘90s there were some significant problems in the banking system and I took over as chairman and CEO and my partner was co- CEO and neither one of us was a banker by background, but we decided it was an interesting opportunity to try and take over the management of this bank and reposition it. So we started acquiring loans from government agencies that were closing banks and were selling off the loans and also acquiring loans from other troubled institutions. We did that and we were able to take advantage of that downturn and build up a rather significant company and sell to Lehman Brothers at a premium in 2007.” That was Capital Crossing. As Lehman Brothers went under, his weather eye told him there were more bargains to be had and he acquired Admirals Bank, which he moved to Boston, and beefed up to a full-service bank offering the range of traditional banking services. “We’ve roughly doubled the size of the staff and grown significantly the last 18 months. We’ve really taken advantage of the dislocation in the banking system to increase our customer base.I think we’re on a pretty clear path to be in a position of a billion plus-dollar bank within the next 2-3 years and significantly larger thereafter.” A native Bostonian, Lazares got his law degree from Boston University and is on the Dean’s Council at Harvard’s Kennedy School of Government. His father, William, owned a small fuel oil company called Town Oil, where Lazares got his first grounding in business. “It was a small business, and that was my summer job. And I think I probably learned more working in a little tiny business like that then I would have working in a gigantic company, because it was all very close to the ground, and on one or two occasions when my father had some health issues and I had to go in there as a teenager and help run things for a while, those were experiences that I think helped me through life in terms of understanding on a basic level how to make business work.” Lazares’ wife Pamela is also an attorney and they have three children: Nicholas, 26, who works with his father, Katherine, 24, a law student, and Alexandra, 17, a senior at Milton Academy. Lazares says the Caldera has not seen much action lately, but he still boats on the Cape and as a foul weather sailor he makes it his business to take a dead reckoning of the financial waters and chart his course accordingly. “You can lose the rhythm of Wall Street and get upset about being restricted, but the sea is 300 feet deep here,'' he told Bloomberg aboard the Caldera that fateful summer. “When that happens, I walk up to the bow, take a look and, after a few moments, everything is great again.”