Banking experts and investors call new MNC Financial Inc. Chairman Alfred Lerner a smart man, but they said yesterday that no one should expect him to reverse the slide of the troubled banking company's stock price any time soon.
MNC's stock rose 62.5 cents yesterday to close at $7 a share on volume of 486,300 shares, after falling 25 cents Monday in the wake of MNC's announcement that the Cleveland millionaire would replaceAlan P. Hoblitzell Jr. as chairman and chief executive.
MNC is the parent company of Baltimore-based Maryland National Bank and American Security Bank in Washington. Its biggest non-bank subsidiary is a Delaware-based credit card company that is one of the country's biggest issuers of credit cards.
Yesterday's closing price is a far cry from the stock's 52-week high of $29.25 a share, but the condition of MNC's real estate loans is a far cry from what it appeared to be duringt the stock's halcyon days last September.
Investing professionals are split over whether Mr. Lerner will be able to fix the company's formidable problems, and even the optimists aren't predicting that success will be quick and easy.
Most stock analysts who follow the company say they think its problems can be fixed, but they hedge by saying it is too soon to buy MNC's stock, whose price is a sensitive indicator of the company's health.
But other investors -- notably so-called short-sellers, who bet with their investments that the stock will go down -- have been piling into MNC in the expectation that its problems will get much worse before they get better.
"MNC is fighting for its life," said Tom Barton, a Dallas-based investor who is selling MNC's stock short. "Their exposure to real estate is basically uncontrollable. The fact that Al Lerner is there, despite the fact that he's a super-quality guy, will make no difference. . . . The loans are already made, and there's nothing hecan do to collect them. Quality of management doesn't matter once the loans are made."
"My best guess is the bank survives," said Anthony R. Davis, an analyst at Wheat First Securities Inc. in Richmond, Va., who is neutral on the stock. "The Washington market will come back. [MNC] is the biggest bank in the state and is sitting on a lot of value in its credit card companies."
The company's prospects hinge on whether even more of MNC's real estate loans, which already make up most of the company's $757 million in non-performing loans, will go sour in months to come.
Mr. Barton is one of many investors who have sold almost 2.million of MNC's 85 million shares short. When an investor sells short, it means that he borrows shares and then sells them. Later, the investor buys shares at the new, lower price and gives them to the person who lent them to him.
If the investor sells borrowed shares short for $10 each and buys shares later for $5 each to pay back the borrowed stock, the investor keeps the $5-a-share difference.
If the price goes up after the investor sells the stock short, hloses, which explains why short-sellers are as pessimistic as most stockbrokersare optimistic.
Mr. Barton contends that MNC's real estate loans that exceed the company's net worth. If many more of them go bad -- which he thinks is likely -- it could be enough to send the stock close to zero.
To put the short-selling in perspective, many companies have inspired bigger spurts of short-selling than MNC has.
But after the stock closed at $8.625 a share Aug. 14, the number of MNC shares sold short rose 64.8 percent in the next month, a sign that short-sellers are betting on the stock to go much lower.
David S. Penn, a Legg Mason, Wood Walker Inc. analyst and relative optimist, said MNC's stock could fall lower if the current examination of MNC's banks by the U.S. comptroller turns up more unpleasant news about the quality of the bank's real estate loans.
He added that the stock will be depressed late in the year anyway, because many investors will unload MNC's stock before the end of the year to lock in their losses and use them to reduce their taxes.
"Long-term, it's a good value," said Mr. Penn, who contends that even if the Baltimore-Washington real estate market goes as low as the Texas market did during the 1980s MNC could still do fairly well.