Shawmut National Corp. said Tuesday that it had sold two packages of commercial and residential real estate with a carrying value of $309.8 million. The New England company promoted the sale as a significant step in resolving its credit problems.
Shawmut, which is based in Hartford, Conn., said it sold commercial real estate assets with a carrying value of $289.9 million to Whitehall Street Real Estate Limited Partnership III, a partnership formed by Goldman, Sachs & Co., and to J.E. Robert Cos.
A package of residential real estate with a carrying value of $19.9 million was sold to Berkeley Federal Bank and Trust, West Palm Beach, Fla.
Original Value Not Disclosed
Shawmut said it received 203.0 million in net proceeds from the sales, equal to 65.5% of the assets' carrying value on its books. It would not reveal the original value of the loans.
Shawmut, New England's third-largest bank company, said the transactions will not have a material impact on its second-quarter results, which it expects to report during the second week of July.
But it said the sales reduced its nonperforming assets, which stood at $771.1 million on March 31, by about 23%.
The bank company's stock fell 25 cents a sham to $23.375 on Tuesday. Company officials said the effects of its planned sale, was already calculated in the bank's stock price.
The sales included $128.8 million of performing and restructured loans in addition to $152.9 million of nonperforming loans and $28 million of foreclosed properties.
Analysts characterized the sales as an important event for Shawmut.
"This is another step on their road to recovery," said Michael Mayo, an analyst at UBS Securities. "By the end of the third quarter, credit quality will be a nonevent for Shawmut."
Shawmut, which has paved its road to recovery by severely cutting expenses, said it will benefit from reducing overhead costs relating to administration of its bad real estate. The costs involve taxes, maintenance, and fees to lawyers, appraisers, consultants, and other professionals.
"Disposition of these assets has a double benefit for Shawmut," said Joel B. Alvord, the bank's chairman and chief executive, in a prepared statement. "One, it will reduce noninterest expenses. And two, it focuses our management team and resources on growing revenues and earnings."
The banking company said its loan-loss reserve, which totaled $826.0 million at March 31, will be reduced by $108.6 million as a result of the sale. The reserve, which represented 106.3% of nonperforming assets at the end of the first quarter, would have stood at 120.4%, had the bulk sale been accomplished by that date.
"They have already reserved well for this, so there is a nice cushion there." said Mr. Mavo.
He and other analysts were generally upbeat about the immediate outlook for Shawmut's overall earnings, which fell 16% to $36 million in the first quarter.
"We think it's going to be an awfully nice quarter," said Lawrence Cohn, an analyst at PaineWebber. "Their credit expenses will be down and we're starting to see some loan volume."
The real estate portfolios sold primarily included mortgages and foreclosed property in Connecticut, Massachusetts, and Rhode Island.
By packaging the assets for bulk sale, Shawmut has followed a trail blazed by some of the nation's biggest bank companies, BanKAmerica Corp., First Chicago Corp., Fleet Financial Group, and NationsBank Corp. recently disposed of big packages of troubled real estate assets -- accepting a substantial discount from original value in order to put their real estate woes behind them.
Recent bulk sales have been recorded at about 50% to 55% of the carrying value of loans. Some banks, however, have been selling properties individually, waiting for the market to pick up. Last week, Chemical Banking Corp. said it sold a big southern shopping mall, one of the most desirable properties in its portfolio, for 80% of its original value.
"A lot of banks are taking a wait-and-see attitude," said Jeffrey G. Rutishauser, a managing director in Price Waterhouse's Real Estate industry Services Group.