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Debt Obligations Knocking on Maryland Bank’s Door

January 11, 1991

WASHINGTON (AP) _ A week after the failure of the Bank of New England, another big U.S. bank is struggling to stay afloat in a sea of loans.

But despite sinking stock prices and $646 million due to lenders and note holders next week, Baltimore-based MNC Financial Inc. has a different set of problems, analysts said Friday. MNC is the parent holding company of the largest bank in Maryland and the No. 2 bank in the nation’s capital.

″They have a better chance long term than the Bank of New England,″ said Dan Martin, an assistant vice president with Standard & Poor’s Financial Institutions Group in New York.

After the failure of the Bank of New England last weekend, MNC’s stock hit an all time low of $1.87 1/2 Wednesday before rebounding 87.5 cents Thursday to close at $2.75 per share on the New York Stock Exchange.

Meanwhile, MNC has been trying unsuccessfully since October to sell its giant credit-card subsidiary, MBNA America, the fourth-largest issuer of bank credit cards in the country with $6.9 billion in managed outstanding loans.

Wayne Garnes, a ratings specialist with S&P, said MNC ″is on a credit watch with negative implications because of their near term liquidity problems.″

Because of its valuable assets MNC, one of the nation’s 30 largest bank holding companies, has more flexibility than the Bank of New England, which federal regulators took over Sunday. But MNC’s short-term problems are sizeable.

On Monday MNC, parent of Maryland National Bank and American Security Bank in Washington, is slated to repay about $375 million to a syndicate of nine banks headed by J.P. Morgan & Co. The following day, investors in MNC variable rate notes are scheduled to be paid another $271 million.

But as of Sept. 30 - the most recent figures available - MNC posted a $241.9 million loss for the first nine months of 1990. For the same period in 1989, MNC turned a $192.9 million profit.

In fact, from 1987 to 1989, profits rose steadilly from $177.5 million to $245 million.

Over the last year, however, non-performing assets - loans that aren’t being repaid largely in the real estate market - grew from $289.3 million in the first nine months of 1989 to $1.15 billion for the same period of 1990.

″MNC had one of the largest real estate portfolios after Bank of New England,″ said Claire P. Percarpio, a bank analyst with Duff & Phelps Inc., a Chicago-based independent research firm.

She said MNC’s problems were circular with a bad real estate market souring MNC’s loan portfolio which, in turn, scared investors, making it harder to raise money to pay off the corporation’s notes.

But unlike Bank of New England, the problems at MNC lie with the parent company rather than the banks themselves, she said.

MNC isn’t saying how it intends to pay the money due next week.

″We’re keeping our options open and we’re pursuing a variety of activities which are all aimed at enabling MNC to meet its forthcoming obligations,″ said MNC spokesman Daniel G. Finney.

Those options include selling the credit card subsidiary or spinning it off as a publicly traded company if no buyer can be found.

Such an offering could bring MNC as much as $1.13 billion, according to the estimated price of $25 a share that was part of the company’s Securities and Exchange Commission filing.

The credit-card subsidiary, based in Newark, Del., has carved out a high- income clientele by primarily offering cards to 1,300 professional, fraternal, educational and special interest associations.

But analysts say there are few banks with pockets deep enough to buy such a sizeable operation. Also a change in ownership of the subsidiary would require the approval of federal banking regulators, delaying the sale even longer.

Finney refused to discuss reports that MNC Chairman Alfred Lerner and his Cleveland-based insurance company, Progressive Corp., would purchase between 25 percent and 30 percent of the credit card subidiary’s stock to boost investor confidence.

An expected additional filing with the SEC that reportedly would detail such a deal did not materialize Friday.

Finney said the mood among MNC’s 12,000 employees in Maryland, Delaware and Washington wasn’t upbeat, ″but I wouldn’t call it downbeat either. We’ve got a bunch of determined people who recognize that you can’t let up until it’s time to switch off the light and walk out the door and we don’t think that’s going to happen.″

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