BayBanks' Shares Resist New England Undertow

Though other Boston-area bank stocks have plunged, BayBanks' shares remain mysteriously buoyant, say analysts.

These shares are "definitely overvalued," said analyst Donald Kauth of First Albany. He cited nonperforming loan problems at least as severe as those of the larger banks in the region.

On March 31, BayBanks Inc. had $563 million in nonperforming assets, equaling 79% of the bank's combined equity and loan-loss reserves. That figure jumps to 96% if $123 million in loans 90 days past due are included in the nonperforming category. Banks that hit 100% have troubled surviving without federal assistance, analysts say.

Pockets of Dimness

Two of the seven BayBanks subsidiaries have been hit the worst. BayBank Harvard Trust, with $1.4 billion in assets, has nonperforming assets that equal 140% of capital plus reserves. BayBank Valley Trust, with $1.1 billion in assets, weighs in at 133%.

According to Mr. Kauth's calculation of adjusted book value, BayBanks' picture is dimmer still. Reserves currently cover only 55% of the bank's shaky assets -- the lowest such ratio of any New England bank as big or bigger than BayBanks.

By assuming 100% coverage, Mr. Kauth determined that reported book value of $30.64 tumbles to an anemic $1.04. In that case, BayBanks' stock changed hands late Wednesday for a stratospheric 15 times adjusted book value.

Failure to recognize the extent of these problems leads Mr. Kauth and others to conclude that BayBanks will be wracked with heavy provisions for loan losses this year.

Yet shareholders continue to allow the stock to "defy gravity," says Gerard Cassidy, an analyst for Tucker Anthony Inc. in Portland, Maine. "The stock does not reflect the deterioration of BayBanks loan portfolio throughout 1990."

Improved earnings help explain the relative defiance of the regional stock malaise. In the first quarter of this year, BayBanks earned slightly more than $1 million, versus a $13.8 million loss a year earlier.

ATMs Give a Boost

The earnings stem mainly from a healthy consumer banking franchise that includes the most sophisticated and largest automatic teller machine system in Massachusetts.

"Customers admire BayBanks' front-end business," said James Moynihan, an analyst for the Advest Group Inc. in Boston. "And they have elected to stay with the bank as the larger banks are very publicly toughing it out."

Many Levels of Regulators

BayBanks operates four state-chartered banks and three national banks. The national banks are regulated by the Office of the Comptroller of the Currency, while the state banks are examined by the Federal Deposit Insurance Corp. and the state banking commissioner. The holding company is examined by the Federal Reserve Bank of Boston.

Under pressure from regulators to streamline operations, BayBanks has announced plans to merge four of the state banks and one small national bank into a single entity.

The move will address the capital issues at these banks, boosting their collective ratio of equity to asset to 5.5% when the merger is expected to close at yearend, from 4.8% at March 31.

The merged bank would have assets totaling $9 billion and a new name: BayBank Trust Co., with headquarters in Burlington, Mass.

But the move also has triggered speculation that trimmed-down BayBanks will attract interest from an out-of-state bank looking for a New England foothold in anticipation of the region's turnaround.

BayBanks' chief financial officer, William Sandalls, deflects such expectations: "Our ultimate plan is to have a single, state-chartered BayBanks," he said. [Graph Omitted]

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