For Metropolitan Financial, Selling Securities Is a Mainstay

Metropolitan Financial Corp. has made a living by selling securities, and the strategy is paying off.

Last week the healthy, Minneapolis-based company announced the sale of $235 million in long-term securities, the largest amount it has ever sold at once. The sale will bring more than $15 million in profit, boosting earnings per share by about $1.20.

The sale was aimed at reducing interest rate risk, but it had other benefits. Metropolitan's risk-adjusted capital ratio will exceed 12%, an extremely high level, providing the financial stability the company needs to continue its policy of aggressive acquisitions.

"No one is overcapitalized in this environment," said William Bartkowski, executive vice president of the holding company, which has $4.5 billion in assets.

A Top Seller

Certainly, many banks and thrifts sell portions of their security portfolios. But analysts estimate that Metropolitan makes as big a percentage of earnings from securities sales as any bank or thrift in the country.

"Some institutions rely on it more than others," said Steven R. Schroll, an analyst with Piper Jaffray & Hopwood Inc. in Minneapolis. "Metropolitan has benefited more and has strategically decided to do it more often."

In the third quarter, healthy thrifts boosted their earnings 5% to 30% through securities sales, said Bruce Harting, a thrift analyst with Salomon Brothers Inc.

Security sales appear to be as big a part of the bank's profit strategy as making plain-vanilla mortgage loans.

Mr. Bartkowski said the sales are made to adjust the balance sheet and lessen risk. But security sales will boost Metropolitan's pretax profits by 50% this year, say analysts.

Profits Expected to Double

Including the recent sale, the holding company has earned about $30 million from these transaction this year. Analysts expect 1991 pretax profits to be around $62 million -- more than double the $25 million last year.

Aside from the security sales, big profit gains -- and deposit and asset growth -- have come from acquisitions over the past three years, including failed thrifts held by the Resolution Trust Corp. Also, its cost of funds has fallen.

In the past, securities sales accounted for as much as 100% of profits. In 1989, for example, $16 million in profits from such sales offset an operating loss.

The securities most recently sold were backed by 30-year fixed-rate mortgage loans. Metropolitan will replace the divested assets with shorter-term securities. These carry less interest-rate risk because their value varies less than longer-term bonds as rates fluctuate.

A Good Time to Sell

The interest rate of the benchmark 30-year Treasury bill has been coming down lately and may continue to fall. For banks and thrifts that carry securities pegged to those rates, this is a good time to sell, because the securities' market value exceeds face value.

"You'll see more sales and gains reported in the coming months," said Mr. Schroll. "Anywhere in this time of the interest rate cycle, there are plenty of banks reporting gains."

Accounting policies of the Office of Thrift Supervision are partly behind Metropolitan's security sale. Regulators are asking banks and thrifts to focus on interest rate risk, just as they asked them to focus on credit risk.

Metropolitan would prefer to sell and securitize five-, seven-, or 15-year mortgages. But customers in some of the Upper Midwest communities that Metropolitan serves expect 30-year loans, so the bank will continue to carry these on its balance sheet.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.