Back to Basics at MNC

October 27, 1990

MNC Financial Inc. chairman Alfred Lerner is taking a decisive step to restore the state's largest banking empire by putting its crown jewel credit-card division on the block. In a world of dwindling options, Mr. Lerner describes the sale as inevitable, saying: "The job we have is to get this place fixed. . . The first way to do that is to recognize what has to be done. . . put the procedures in place. . . and go ahead and do it."

He's right. Non-performing loans soared 40 percent in the third quarter and the bad-lending backlash is expected to continue. Lenders, chafing under rigorous regulatory pressure, aren't rushing to make loans to troubled comrades.

This makes the sale of MNC's star performer division not only prudent but inescapable. If the sale fetches anything near what the operation is worth -- about $1.4 billion -- it should give MNC the capital it needs to ride out future losses. Will it be enough? If not, there are other options.

In any case, it's clear that Mr. Lerner and his lieutenants are wisely coming to grips with the severity of MNC's plight. The latest move scuttles an earlier plan to raise $180 million through a stock sale to Mr. Lerner. The company has bolstered its cash reserves to $791 million -- nearly dollar-for-dollar protection against loan losses.

Much is being made of the credit-card division's huge profits -- which accounted for 30 percent of last year's net income. Surely, selling off this cash cow reduces the stellar earnings growth potential that drove MNC in the '80s.

Nonetheless, the company will be left with a bread-and-butter banking business bolstered by a massive branch network and strong consumer franchise. Even now, with shareholder's equity of $1.45 billion, or 5.3 percent of assets, the company is hardly insolvent.

MNC's return to basics is sharpened by the severity of its troubles. But a similar path is being trod by many lenders in the wake of pressure from regulators to switch focus from accelerating earnings to building strong balance sheets. This is as it should be. The travails of a banking industry blind to the lessons of the savings and loan debacle finally are giving way to doing business the traditional way -- making money on the spread between deposits and loans.

It's no small irony that MNC's twin growth engines -- its credit card and commercial lending divisions -- are effectively neutralizing one another, returning the bank to what it once was. This isn't such a bad thing. MNC will likely never again see the go-go growth of its recent past, but its distinctive green and white logo will remain a part of the regional landscape.

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