Merger Expected to Blunt Zale's Impact on NCNB

NCNB Corp.'s exposure to a troubled Texas jewelry retailer has stirred some concern on Wall Street, but the company's pending merger with C&S/Sovran Corp. is expected to muffle the impact.

NCNB's nonperforming assets reached $1.1 billion, or 2.9% of loans and foreclosed real estate at the end of the third quarter.

The possible bankruptcy of Zale Corp. of Irving, Tex., the nation's largest jewelry retailer, has the potential of increasing that burden of bad loans.

But fortunately for NCNB, any action taken on its Zale exposure would probably be buried in the yearend provisions related to its planned merger with C&S/Sovran.

"You'll have a blown-away quarter for both banks, so that whatever happens [with Zale] is going to end up minor noise in the background," said Nancy Bush, a banking analyst with Brown Brothers Harriman in New York.

Zale lost $85 million in the quarter ended Sept. 30 and is in default on its banks lines.

The company's 10-Q report to the Securities and Exchange Commission said it would have difficulty meeting a Dec. 2 deadline for repaying $52 million in debt interest and could end up in default following a 30-day grace period to carry it through the Christmas selling season.

NCNB will not comment on customer relationships. But data available from Loan Pricing Corp. indicate the Charlotte-based bank, as lead manager of a four-bank syndicate, took one half of a $300 million credit facility to Zale in May 1990.

NCNB's merger partner, Atlanta-based C&S/Sovran, took a $24.9 million share.

It's not clear to what degree NCNB or C&S/Sovran were subsequently able to reduce their exposure in the secondary market.

NCNB has signaled privately to some analysts that its own exposure is $30 million to $40 million.

Analysts point out that, depending on the credit's structure, NCNB wouldn't necessarily have to put all of its Zale exposure on nonaccrual and reserve against it.

In addition, the bank could offset the negative effect with securities gains, as it has been doing all year.

"I don't think it's going to blow away the fourth quarter," said Moshe Orenbuch, with New York-based Sanford C. Bernstein & Co.

PHOTO : The Fall, Rise, And Fall of NCNB

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