Major Banks Said Unlikely To Follow Bank of Boston in Loan Writeoffs
NEW YORK (AP) _ The nation’s major banks probably will not follow the lead of Bank of Boston Corp. and write off millions of dollars in loans to Third World countries, bankers and financial analysts said Tuesday.
Citicorp and Chase Manhattan Corp., the nation’s two largest bank holding companies, indicated they had no plans to write off any loans.
But investors seemed to think the banks would take further steps. Bank company stocks fell sharply on Wall Street.
Chase Manhattan stock slumped $2.25 a share to $20.12 1/2 , Chemical New York Corp., the parent of Chemical Bank, dropped $3.25 to $20.75, and Manufacturers Hanover Co. stock skidded $2.37 1/2 to $24.25.
Bank of Boston, the nation’s 15th largest bank holding company, said Monday it would write off $200 million in loans to Third World nations as part of a reorganization of its $1 billion loan portfolio to underdeveloped countries.
The company said the move would result in a quarterly loss of between $50 million to $60 million, although the bank said it probably would show a small profit for all of 1987.
Earlier this year, as the financial condition of several Latin American nations worsened, major banks added huge amounts of money to their loan loss reserves to cover potential bad loans. The first to take the step was Citicorp, which added $3 billion to its reserves.
But Tuesday, the nation’s largest bank company indicated it had no plans to write off any loans, which is a more drastic step.
″Bank of Boston made a judgmental call on the basis of its own market position and situation,″ said Bill Koplowitz, a Citicorp spokesman. ″We don’t regard it as a precendent for ourselves.″
At No. 2 Chase Manhattan, which increased its reserves by $1.6 billion during the spring, spokesman Fraser Seitel said Bank of Boston’s move ″hasn’t caused us to alter (our) plans.″
Officials at other major banks, including Manufacturers Hanover Trust and BankAmerica Corp., declined comment.
Wall Street analysts said they did not expect writeoffs by the nation’s largest banks.
″I don’t think that Bank of Boston is a trendsetter, particularly for the money-center banks″ such as Citicorp, Chase Manhattan and BankAmerica, said Cheryl Swaim, an analyst with Oppenheimer & Co.
However, she said, ″the medium-size regionals might decide to do what they have done.″
Asked about Bank of Boston, Cliff Griep, an analyst with Standard & Poor’s Corp., said: ″Their action reflected, I think, what they perceived as a deteriorating situation (among Third World countries), but they had the financial strength to add to reserves.″
Bank of Boston has now written off or provided reserves to cover more than 60 percent of its Third World loans. But, Griep said, ″bringing the reserve level up to 50 percent for total exposure would be challenging for the other banks, primarily the money-centers,″ which have a higher percentage of loans to Third World countries in their portfolios than Bank of Boston has.
Larger banks ″might be hampered by their capital to take such provisions because the impairment to their capital base would be relatively more severe than it was for Bank of Boston,″ Griep said.
Bank of Boston said it planned to offset the writeoff with $200 million from its loan-loss reserve of $720 million and also said it was establishing a $430 million reserve for possible losses on its remaining $800 million in Third World loans, which are mostly owed by Latin American countries.
Last spring, the bank established a reserve equivalent to about 25 percent of its $1 billion portfolio of Third World loans.
In the meantime, the largest banks remain closely tied to their Third World borrowers.
″It’s in the banks’ best interests for the countries to get out of these problems,″ Ms. Swaim said. ″They’re not just going to walk away and forget it.″