Swamped by bad real estate loans and coming off a tough regulatory exam, MNC Financial Inc. said yesterday it suffered a record loss of $173 million during the third quarter and would sell its highly profitable credit card unit to raise much-needed capital.
The deteriorating condition of MNC, parent of Maryland National Bank and American Security Bank in Washington, led federal regulators to greatly intensify their oversight of the state's largest banking company and severely restrict what actions the company can take without federal approval.
MNC said yesterday it signed an agreement under which, among other things, any payment of dividends or changes in senior management must be cleared by regulators.
Announcement of the loss, made before the stock market opened, continued a year in which MNC and many other banking companies throughout New England and the mid-Atlantic region have suffered one devastating quarter after another.
Collapsing real estate markets and evaporating sources of capital have seen a number of banks report record losses and slash dividends this year. When a $74.7 million loss for the second quarter is included, MNC has already more than wiped out all of the income reported last year.
Traded on the New York Stock Exchange, MNC dropped to $3.625 a share yesterday before closing at a record low of $4.125, down 75 cents for the day. The second-biggest loser of the day on the exchange, MNC was also the fourth-most active with 1.9 million shares changing hands.
At a news conference yesterday morning, Alfred Lerner, chairman and chief executive officer of MNC, said the third-quarter loss stemmed from the company's decision to dramatically increase the amount of money held in reserve to cover any further losses from its troubled loan portfolio.
He said the $350 million that MNC added to that reserve over the past three months topped regulators' requirements by more than $100 million.
"The job we have is to get this place fixed," Mr. Lerner said, "and I'm committed to that job. We are taking a realistic, and maybe a pessimistic, view at how deep that hole is and how long it will take to get out of it. I am not telling you we are taking everything we need to take. I am telling you it's a moving target."
He said he expected further losses in the fourth quarter but that it was too early to say whether the company would decide in January to pay its fourth-quarter dividend.
He held out prospects that the company could be profitable in 1991. "The key word for next year is hope," he said.
For the three months that ended Sept. 30, MNC said it lost $173.4 million, or $2.05 a share, in contrast to income of $68.8 million, or 80 cents a share, for the comparable period in 1989.
MNC has lost $241.9 million, or $2.91 a share, during this year's first nine months in contrast to $192.9 million, or $2.24 a share, in income last year.
Most of this year's losses have come from MNC's two banking subsidiaries, which hold the troubled loans.
The losses have decreased the banks' capital -- an important financial cushion against any further losses.
While MNC executives said they did not know the exact level of the banks' capital yesterday, analysts said this year's losses had likely pushed them down to or below current regulatory requirements.
The company said yesterday it had decided in the past few weeks to sell MBNA America, the nation's fourth-largest credit-card company, and a profitable consumer-finance operation, Landmark Financial Services Inc., to help raise its capital level to meet future regulatory requirements. MNC had previously said it would sell three lease financing companies.
In light of the move, MNC said it had canceled a planned sale of preferred stock to Mr. Lerner and other directors, aimed at raising $180 million in capital.
"The facts are now that $180 million is not enough," Mr. Lerner said. Asked what level would be sufficient, he said: "Truth is, we don't know. But it's a lot more."
However, Mr. Lerner, the company's largest shareholder with 8.9 percent of the company's 86.3 million shares outstanding, said he still planned to pursue regulatory approval to acquire more than 25 percent of the company either in the open market or through some other arrangement.
While the size of the company's loss for the third quarter would have been virtually unthinkable a few months ago, David S. Penn, a banking analyst at Legg Mason Inc. in Baltimore, said that "expectations were so low" regarding MNC's earnings that almost no figure would have surprised observers.
But the sale of its credit card unit, while rumored in recent days, had not been expected. "I didn't think that would happen," said ** banking analyst Kyle Prechtl Legg at Alex. Brown Inc. "I thought they would be doing all they could to keep it part of the bank."