National Bank of Canada Weighs Seizing N.Y.'s Lincoln Savings
Bad loans collateralized by shares in $2.6 billion-asset Lincoln Savings Bank may leave National Bank of Canada with little choice but to take over the undercapitalized New York thrift.
In late August, Unicorp American Corp., Lincoln's owner, defaulted on $89 million in bank borrowings.
The borrowings included a $65 million senior subordinated loan from National Bank taken out to finance the 1988 acquisition of Lincoln, and a $24 million secured revolving credit from a syndicate of banks headed by National Bank last year.
Entire Equity Is Collateral
Unicorp had pledged all of its equity in Lincoln, a New York City savings bank with 15 branches, as collateral for the loans.
Leon Courville, senior executive vice president of National Bank in Montreal said that nothing was forcing National to exercise its rights immediately but added that the bank planned to make a decision over the next several months.
"It's not something we're considering as of now, but we definitely haven't ruled it out," Mr. Courville said.
Lincoln officials and analysts said National remains hesitant to take over the U.S. thrift because of its rising problem loans and a capital shortfall.
Extension Held Possible
Officials of both Lincoln and Unicorp said they have had no word from National on its plans but raised the possibility that National might extend the term of the loans or provide Unicorp American with additional financing.
However, Mr. Courville ruled out any fresh funding for Unicorp American.
Montreal-based National Bank, Canada's sixth-largest bank, with $29 billion in assets, set aside last month an extra $87 million in loan loss provisions to help cover loans to Unicorp.
Lincoln officials and Canadian bank analysts said National may not have any alternative to acquiring Lincoln.
Choices Are Limited
"Unicorp's practically out of business," said Alton G. Marshall, chairman of Lincoln's executive committee and formerly chairman and chief executive of Lincoln Savings until he retired in December of last year.
"Either they call in their notes and become owner, or work out a compromise arrangements with Unicorp and prolong the agony," he added.
"They can either write off their loan or realize the security on it," said one Toronto-based analyst who declined to be identified.
Despite its problems, acquisition of Lincoln would give the Canadian bank access to low-cost U.S. dollar funding from some $700 million in low-interest passbook savings out of some $1.7 billion in retail deposits at the U.S. bank.
According to filings with the Securities and Exchange Commission, Lincoln lost $31 million over the first six months this year, including $27 million in the second quarter.
Nonperforming assets totaled $236.4 million as of June 31, up from $189.2 million at year end.
Most of the problem assets are in commercial real estate loans, which rose to $174 million from $150.6 million at year end.
The rise in nonperforming loans forced Lincoln to set aside $25.5 million in loan loss provisions in June, dragging the bank's risk-based capital ratio to 6.03%, below the 7.2% regulatory minimum. Last month, Lincoln submitted a recapitalization plan to the Office of Thrift Supervision. Regulators have not yet responded to the plan.
More Capital Required
To acquire Lincoln, National Bank would have to pump in $21 million in fresh funds to meet U.S. regulatory capital minimums.
Unicorp American's parent, Unicorp Canada, is majority-owned by George S. Mann, a Canadian entrepreneur and former National Bank director.
Among the other large shareholders in Unicorp Canada are Hees International, which is owned by Canada's Bronfman family.
Acquisition of Lincoln Savings would mark new inroads by a Canadian financial institutions into the U.S. market.
In May, CT Financial Services Inc., parent company of the Canada Trust group, acquired First Federal Savings and Loan Association of Rochester by pumping in $188 million in fresh capital.
Earlier this month, Bank of Montreal, which owns Chicago-based Harris Bankcorp., confirmed it is considering speeding up its acquisitions in the United States.