C&S/Sovran Stock Dips in Wake of Regulatory Agreement
NEW YORK -- Shares of C&S/Sovran Corp. were off $1 on Monday afternoon following the company's announcement that it had signed regulatory agreements for its Washington, D.C., and Virginia banks.
The stock was selling for $19.50 in heavy trading on the New York Stock Exchange.
Analysts said the announcement, made late Friday afternoon, signals that a dividend cut is likely and that the banking company may lose money in the second quarter.
"Certainly, the outlook for the dividend would seem shaky at this point," said Nancy Bush, an analyst with Brown Brothers Harriman & Co.
About earnings, she said, "I was estimating it would earn 35 cents [a share] in the second quarter, $1.40 for 1990, and $2 for 1991."
|A Loss Scenario'
"Now we might be looking at a loss scenario for the second quarter, and we will have to look at 1990 and 1991 estimates," Ms. Bush said.
C&S earned 20 cents a share in the first quarter and paid a dividend of 39 cents.
C&S/Sovran, the 12th-largest U.S. bank, with assets of $50 billion, was born in 1990 with the merger of Sovran Financial Corp. and Citizens and Southern Corp. C&S/Sovran's woes stem mostly from Sovran's problem real estate loans in the Washington area, which is experiencing a severe real estate downturn.
"These problems show you better darn well do good due diligence when you merge two banks," Ms. Bush said.
Pact with Comptroller
That truism came home to roost when C&S/Sovran signed formal agreements with the Comptroller of the Currency to monitor its Virginia and Washington banks' credit risk management process and to curb the banks' payments of dividends to their parent.
C&S/Sovran's accord includes agreements to build capital to above the minimum regulatory levels by the end of 1991.
The agreement makes the regulators partners in working out C&S/Sovran's loan problems. It also includes an examination of the current bank management in Washington and Virginia, the company said.
C&S/Sovran is the largest bank holding company forced to sign regulatory agreements for some of its subsidiaries during the current recession, Ms. Bush said.
Levels of Severity
There are three levels of formal agreements that the regulators force on banks as punishment - a memorandum of understanding, a letter of agreement, and a cease and desist order - in order from bad to worse, Ms. Bush said.
C&S did not specify which one it signed.