Chemical, Hanover Dip Over Question on Payout

Shares of Chemical Banking Corp. and Manufacturers Hanover Corp. fell sharply Thursday after a leading Wall Street analyst questioned the ability of the combined banks to pay their post-merger dividend of $1.20 a share in 1992.

The comments, made by Bear, Stearns & Co. analyst Mark Alpert, were strongly rebutted by a top Hanover official.

"We expect to have significant earnings next year in the new Chemical, and there is absolutely no question whatsoever about our ability to pay the dividends," said Peter Tobin, Hanover's chief financial officer, in a telephone interview.

Mr. Tobin will hold the same position at the new Chemical.

|Concern Seems Farfetched'

Other analysts dismissed the notion that the dividend might be suspect.

"The concern seems farfetched," said Raphael Soifer of Brown Brothers Harriman & Co.

Still, investors seemed to take Mr. Alpert's concerns to heart.

While bank stock prices were broadly lower on Thursday -- apparently reflecting general economic concerns -- shares of Chemical and Hanover were among the biggest percentage losers.

Focus on Equity Offering

Chemical and Hanover dropped by 4.9%. Chemical closed at $20.25, down $1, while Hanover fell to $22.75, a loss of $1.12.

In questioning Chemical's ability to meet its 1992 dividend requirements, Mr. Alpert focused on the use of proceeds from the planned $1.25 billion equity offering.

In regulatory filings, Chemical initially said it expected to downstream about $700 million of the proceeds to the subsidiary banks, while the holding company would keep the rest.

A Firm Denial

To gain approval of the merger by the Federal Reserve Board, however, Chemical agreed to contribute at least $950 million of the proceeds to the subsidiary banks.

As a result, Mr. Alpert concluded that the holding company might not have enough funds to cover its dividend payments.

However, Mr. Tobin said the Bear Stearns analyst is off base.

"We absolutely are not using proceeds from the offering to pay dividends," he said.

In an effort to boost capital of the subsidiary banks, Chemical also decided not to upstream dividends from the banking units to the holding company in 1992.

Analysts' Disagreements

Mr. Alpert views this as further evidence that funds to cover dividend payments by the holding company might be lacking.

But C.J. Lawrence analyst Carol Berger said Chemical will be able to upstream sufficient funds from its nonbank subsidiaries to cover the dividend payments.

Operating subsidiaries pay dividends to the parent company out of their retained earnings.

Range for Retained Earnings

Ms. Berger estimates that by the end of 1992, retained earnings in all of Chemical's subsidiaries will total $1 billion to $1.25 billion.

Chemical's total dividend requirements, meanwhile, are roughly $400 million to $420 million annually, she added.

On a combined basis, the two banks also have some $1.3 billion of cash and equivalents at the holding company level, Mr. Tobin said.

PHOTO : Mark Alpert, Bear Stearns & Co.

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