More red than crimson

I spent the entire weekend wondering about that and didn’t come up with any great answers. Harvard University’s money management problems have gone from simply lamentable to something much harder to fathom.

The latest twist in Harvard’s sad financial story: The university managed to lose about $1.8 billion in its cash accounts during the past fiscal year. Most people think of cash accounts as safe money kept on hand to pay bills and deal with routine problems as they come up. You don’t gamble with that cash.

Harvard, it turns out, had other crazy ideas. It kept the cash accounts invested much more aggressively, just like its endowment’s long-term portfolio, and paid a huge price when financial markets swooned.

But wait, there’s more: Harvard reports it also spent nearly $500 million in the past fiscal year to get out of interest rate swaps, a kind of investment insurance policy that went wrong and started costing too much to keep. Lots of schools and other organizations own swaps and lost money when interest rates plunged, but the scale of the Harvard exposure is dramatic.

If you’re scoring at home, that runs Harvard’s total unanticipated losses to about $2.3 billion for the year. Pile that on top of the university’s $11 billion endowment investment loss for the same year and you’re talking about very serious money.

The Harvard endowment loss, disclosed last month, might tower over all the university’s other money problems. But that setback, a loss of about 27 percent in long-term investment funds, is at least understandable.

Harvard’s endowment performed a little worse than its university-world peers, but virtually every kind of financial asset plunged in value during the last fiscal year. The endowment’s aggressive investment style, which had earned Harvard so many billions over past years, was exposed in a terrible market.

You can accept that performance or demand heads on a platter (several have rolled at Harvard’s money management branch), but there is an explanation for the losses.

There are no acceptable explanations about losing billions of dollars in cash accounts. In fact, there was little in the way of explanations at all when Harvard announced its cash losses. How did that happen and who is to blame?

The practice of investing the cash accounts of individual schools into Harvard’s endowment isn’t anything new, two people familiar with the practice told me yesterday. It’s been going on for many years, and slowly evolved into a bigger and bigger gamble as university’s budgets grew.

Here’s how they said it worked: Individual schools at Harvard received a modest investment return, similar to what they would have earned in a money market, on cash accounts. But the money was actually invested more aggressively with the endowment, regularly generating larger returns than those money market rates.

The dependable result: Excess money, which was available to the university’s central administration to pay for other endeavors. Then the strategy ran off the rails last year.

True, Harvard made a lot of money before it lost a bundle on its cash accounts. But that’s no way to handle the cash schools depend upon day in and day out.

A new Boston company led by a group of former Citizens Financial Group executives is about to finalize a deal raising $1.1 billion to build a community banking franchise.

NBH Holdings Corp. is expected to close today on the common stock offered to more than 70 investors in a private placement. The company plans to use the proceeds to develop a banking franchise through acquisitions and organic growth.

James Connolly, the former Citizens president who stepped down four months ago, is chief executive of NBH Holdings. He is joined by former Citizens colleagues James B. Fitzgerald, Thomas Metzger, and Donald Gaiter. Frank Cahouet, a former Mellon Financial Corp. chief executive, is NBH’s chairman.

Metzger, the company’s chief risk officer, was a vice chairman at Citizens when he left in July. Fitzgerald, NBH’s chief financial officer, held a similar position at Citizens when he resigned in March. Gaiter, a 14-year Citizens veteran, is the company’s chief of acquisitions and strategy.

Another former Citizens executive, Robert Mahoney, formed a Boston business earlier this year seeking to acquire smaller banks. He has not bought any institutions to date.

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.