War in the Middle East could hamper MNC Financial Inc.'s sale of stock in its credit-card operation this month to raise
money to pay debts, according to analysts.
"The outbreak of war would add another element of uncertainty to an already difficult situation," said John A. Heffern, a banking analyst for Alex. Brown & Sons Inc., a Baltimore investment banking firm. "In times of conflict, investors are generally skittish," he said.
As to how well the offer will do if there is no war, Heffern said he would have to wait and see the reaction of investors after a series of presentations around the country, called a "road show."
The launching of the sales effort for MBNA Corp. comes after MNC yesterday narrowly avoided defaulting on $271 million in notes by borrowing money from its subsidiary banks, Maryland National Bank and American Security Bank. However, MNC will have to repay the $271 million loan on Feb. 4, MNC said in a release.
The company also contributed $450 million in assets to its two banks, which an analyst said will strengthen institutions that are already sound. Depositors should not worry about their accounts because of the capital levels at the two banks, said Arnold G. Danielson of Danielson Associates, a banking and thrift consulting firm in Rockville.
MNC also announced that it had repaid the $375 million owed to a syndicate of banks headed by Morgan Guaranty Trust Co. of New York.
MNC's stock soared 46 percent yesterday to $2.75 a share. Today it was up 12 1/2 cents, to $2.87 1/2 in early afternoon trading.
MNC, the state's largest bank holding company, has pinned its near-term future on its effort to quickly sell the stock of its credit-card division, MBNA Corp. Otherwise, it may not have the money to pay off the next round of debt payments only 18 days away.
With 45 million shares being offered in a price range of $21 to $23 a share, the public offering could bring MNC a total of between $945 million and $1.035 billion for MBNA, which is based in Newark, Del.
MNC will need the money to pay about $653 million in debt coming due in the next few months. It will have to repay $271 million to its banks on Feb. 4, $275 million to note holders on Feb. 5, and $107 million in other debt on or after March 19.
Goldman, Sachs & Co. of New York, the lead underwriter of the stock offering, was scheduled to kick off the road show at a private meeting today with potential investors in Baltimore at the Center Club, a downtown business club. A presentation was also planned today in Philadelphia.
A major buyer of the stock will be Alfred Lerner, MNC's chairman and chief executive officer, and his Cleveland-based insurance company, the Progressive Corp. Lerner and Progressive plan to buy 24.9 percent of the stock of MBNA Corp., according to a revised filing submitted to the Securities and Exchange Commission yesterday.
This purchase could cost Lerner and Progressive from $235.3 million to $257.7 million, depending on the stock price.
Lerner will also seek regulatory approval to be chairman of the new MBNA Corp. "until MNC Financial is restored to a sound condition but in no event longer than two years," according to a release. MNC said it is seeking a new chief executive as "soon as practicable."
The proposed large purchase by Lerner and Progressive should help spur the sale of the stock, according to Danielson. "That certainly adds credibility," he said.
MNC has been trying to sell MBNA to another company since October. MNC filed a registration statement with the SEC on Dec. 10 for a public offering of MBNA.
MBNA had a net income of $129 million last year, a 23.9 percent increase over its earnings of $104.1 million in 1989, according to the filing with the SEC. To borrow the money from the banks to pay note holders yesterday, MNC got premission from the Federal Reserve and the Office of the Comptroller of the Currency. In turn, however, regulators required MNC to make contributions worth $450 million to Maryland National and American Security in the form of certain loan and lease assets owned by non-bank subsidiaries.
The banks already have relatively good capital levels, according to Danielson.
With a total tangible capital of about $1.2 billion, or 4.39 percent of MNC total assets, the entire corporation is in the "middle range" of holding companies of similar size, said Danielson.