Banking giant faces problems loans.

July 28, 1991|By Richard D. Hylton | Richard D. Hylton,New York Times News Service

NEW YORK -- The new Chemical Bank will have one of the largest real estate loan portfolios in the nation and one with some of the biggest problems.

Even before the proposed merger with Manufacturers Hanover, Chemical Bank's hefty real estate loans totaled $6.7 billion, with $1 billion of that delinquent and $544 million in foreclosed property.

With Manufacturers Hanover now about to kick in its own $3.5 billion in property loans, $385 million of which is delinquent, executives in the real estate department of the new Chemical Banking Corp. have a total of $1.385 billion worth of troubled loans.

The total portfolio of real estate loans for the new bank will be about $10.2 billion, out of a total loan portfolio of $85 billion.

That is about 12 percent of the portfolio. In addition, there is nearly $2 billion in credits that the banks are committed to finance together as part of their real estate loans.

But there are substantial differences between the merging companies' real estate portfolios. Unlike most money center banks, Manufacturers Hanover has been trying to reduce its exposure to real estate since the mid-1980s, and to that extent it may be well along on the workout curve that nearly all banks are now following.

Chemical took a maverick approach to real estate lending in the mid-1980s and generally has fewer soured construction loan holdings than most banks. But it is still saddled with a hefty number of mortgage loans that require reworking.

"Manufacturers' strategy has been to cut back and get control of the properties that they can handle," said Ronald I. Mandle, a bank analyst with Sanford C. Bernstein & Co.

"They've been cutting back since they had trouble in Texas in the mid-1980s and it's a portfolio that is maturing because they've been cutting back for a while," he added.

One reason why Manufacturers' portfolio is more easily handled than the larger and more troubled Chemical Bank holdings is that many of Manufacturers' real estate problems reflect the troubles of a relatively few major borrowers.

Among the more well-known troubled borrowers are Donald J. Trump and Peter S. Kalikow, and 1515 Broadway LP -- a real estate partnership with Equitable Life Assurance Society of the United States, Tishman Speyer Properties and others. The partnership owns an office building in Manhattan.

In addition to its non-performing real estate loans, at the end of last year Manufacturers was still committed to extend $946 million in real estate loans. Its net charge-offs for real estate loans increased last year to $122 million from $69 million in 1989.

According to analysts and real estate executives, Edward L. Nelson Jr., the senior bank executive who was put in charge of the Manufacturers' property portfolio about a year ago, has continued the process of reviewing each of the big troubled loans individually.

The bank has said in filings with the Securities and Exchange Commission that it expected the non-performing loans in its property portfolio not to grow in 1991.

Although Chemical Bank has wide exposure in its real estate portfolio, primarily in the metropolitan New York and Texas markets, the bank profited heavily from being an innovative leader in real estate banking in the 1980s.

With the acquisition of the Texas Commerce Bank in 1987, Chemical's exposure to the Texas property markets boomed and with that it acquired big problems and lost hundreds of millions of dollars trying to solve them.

The bank was also aggressive in using interest-rate swaps and commercial paper to give it an edge in real estate financing.

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