Chase Group Takes Stake in Hibernia
A lender group led by Chase Manhattan Corp. has taken an equity stake in ailing Hibernia Corp., which announced Wednesday it lost $25.1 million in the third quarter.
Hibernia, based in New Orleans, owes $85 million to the Chase group and faced the possibility of immediate foreclosure.
Hibernia used proceeds of the loan to assemble a Texas franchise by purchasing failed banks and thrifts. It lost $129.9 million during the first nine months of this year and is now scrambling to sell the Texas unit.
In deciding against immediate foreclosure, experts say, the Chase group is apparently taking a big risk. Under the cross-guarantee provision of the 1989 thrift reform law, regulators could seize the Texas unit if Hibernia fails, leaving the Chase group with nothing.
On the Defensive
That's more than a remote possibility for Hibernia, which has struggled mightily to maintain its liquidity.
During the third quarter alone, Hibernia's deposits suffered a 12% or $775 million decline. It borrowed on and off from the Federal Reserve Bank of Atlanta, sold its best loans to raise cash, and even held a press conference to reassure the public about its condition.
Six-Month Grace Period
In short, the company is flirting with the same symptoms that caused the quick failure of Southeast Banking Corp. in September.
Hibernia said the Chase group had given the company until April 30 to complete its recapitalization. In the interim, the Chase group will exchange its $85 million note for a mixture of equity and long-term debt issued by Hibernia.
"Hibernia bought itself another six months - depending on the regulators and the liquidity situation," said Frank Anderson, banking analyst with Stephens Inc. in Little Rock, Ark.
At the same time, Mr. Anderson added, "Chase and the other banks have finally admitted that even though it's bank debt, they in fact are equity owners in this corporation."
HLTs Get Some of the Blame
Hibernia's third-quarter loss compared with earnings of $5 million, or 18 cents a share, in the corresponding period a year earlier.
The deficit did represent an improvement over first-quarter 1991, when Hibernia lost $49.5 million, and its second-quarter loss of $33.2 million.
Hibernia attributed the third-quarter loss to a $32.2 million provision added to its reserve for possible loan losses, primarily related to commercial real estate and highly leveraged transaction loans.
|Real Test' Yet to Come
Nonperforming assets, at $335 million, remained virtually unchanged from the second quarter. C. Geron Hargon, chief operating officer of Hibernia's lead bank, said the company found this apparent stabilization "encouraging," but conceded the "real test" would come "in the next quarter or two."
Mr. Hargon also declined to estimate when Hibernia, with assets of $6.6 billion, would return to profitability.
The executive said Hibernia was delaying the sale of its Texas bank, which has $1.2 billion in assets, in order to complete the restructuring agreement with the bank syndicate. Both Hibernia's Texas bank and its Louisiana bank have been pledged as colateral for the loan.
Close Watch on Liquidity
With Hibernia expected to report continuing losses into next year, analysts will be watching its liquidity position closely. Earlier in October, Hibernia announced it had repaid its "overnight" or short-term borrowings from the discount window of the Federal Reserve Bank in Atlanta, although it never revealed an amount.
Mr. Hargon said Wednesday that Hibernia's liquidity situation has "continued to improve," but declined to comment further.
As of last week, there was no sign that Hibernia had stepped back to the discount window. Since the federally assisted takeover of Miami-based Southeast Banking, outstanding borrowings at the Atlanta Fed's discount window have averaged about $10 million a week - essentially the same level seen before Southeast went to the window in late July.