MNC Puts Bad Loans In Separate Subsidiary
MNC Financial Inc. said Friday that it will move about $1.8 billion of troubled real estate loans into a subsidiary charged with disposing of the assets.
The Baltimore-based banking company, which has been crippled by the region's real estate bust, said that segregating the bad assets will enable it to better focus on more profitable businesses, such as consumer banking.
Realty Unit to Get Assets
It said the troubled assets would be transferred from two subsidiaries - Maryland National Bank of Baltimore and American Security Bank of Washington - to South Charles Realty Corp., a unit formed last year to manage troubled real estate loans.
Analysts said the move may be a step toward creating a "bad bank," a tactic used by Mellon Bank Corp. and First City Bancorporation of Texas, with mixed results. Formal establishment of a bad bank would cause a substantial hit: MNC would have to mark down the bad assets to market value.
The company, which lost $439.5 million last year and earned money in the first quarter only because it sold its credit card business, lost $82 million, or 96 cents a share, in the second quarter of 1991. The latest loss, disclosed Friday, was primarily the result of writedowns and increases in reserves for real estate loans.
MNC widened its loss from $74.7 million a year earlier, but indications were that nonperforming loans are stabilizing and an expense-control program is having a positive effect, analysts said. The loss was less than the $1.10 a share anticipated by John Bailey, an analyst at Ferris, Baker Watts Inc. of Washington.
MNC's main banks are no longer in danger of failing, Mr. Bailey said. But he added, "The remaining question is profitability. What it is demonstrating this quarter is stability."
Loan-Loss Provision Down
David Penn, an analyst at Baltimore-based Legg Mason Wood Walker said the "good news is that there is not more bad news."
MNC's loan-loss provision fell to $73 million in the second quarter, from $165 million in the first quarter, $257 million in the fourth quarter, and $233 million in the second quarter last year.
The company's stock price was unchanged late Friday, at $3.375 a share.
Bramble Is Named a Director
Through South Charles Realty, "we are solidifying our effort to reduce our levels of nonperforming loans," said Frank P. Bramble Sr., who has named a director of the banking company. "We want to better position MNC to manage and contain problem assets as we continue t explore opportunities to remove them entirely from our consolidated balance sheet."
Also Friday, Mr. Bramble, 43, was elevated to president and chief executive officer of MNC Financial. He had been chief operating officer since early this year, and he took the CEO title from Alfred Lerner, who remains chairman of the board and of its executive committee.
Peter L. Gartman, MNC's chief fiancial officer, was named a vice chairman.
"There are large parts of this company that have never been in trouble," Mr. Bramble said. "People are just preoccupied at this point with the $1.8 billion bad assets the bank holds."
The nonperforming-asset total has hovered around that level since yeared 1990
MNC charged off $116 million in the second quarter, and writedowns related to assets acquired in foreclosure totaled $20 million. The first-quarter totals were $106 million and $56 million.
Letting Lenders Lend
Mr. Bailey, the analyst, said moving assets into South Charles makes sense because the employees who know how to find good credits and lend money - who may have had to worry about workouts in the past - can now concentrate on what they do best.
It's is like picking up all of the trash on the floor in your office instead of letting it accumulate," he said.
Mr. Bramble, the new CEO, began his career with MNC in 1972 and managed the consolidation after its merger with Baltimore-based Equitable Bancorp. More recently, as the holding company's chief operating officer, he assumed additional responsibility for the subsidiary banks and for expense reduction.
He said that, through the end of the second quarter, MNC had racked up $29 million in expense reductions, toward a $100 million goal. He said the balance of the cuts would be substantially completed in the third quarter.
Mr. Bramble said the company could post profits as early as the fourth quarter this year or the first quarter of 1992.