Scandal has hurt bank's image


August 01, 1991|By Michael Pollick

An article in yesterday's Business section mentioned decline in deposits at MNC Financial Inc. in the first quarter but failed to mention that the primary cause of the decline was the sale of MNC's credit-card subsidiary, MBNA America.

The Sun regrets the errors.

While an ongoing international scandal and bad real estate loans have not helped its image, First American Bank of Maryland and its bank holding company seem to be holding their own, thanks to two cash infusions this year from the bank's principal investor, the ruler of Abu Dhabi.

Meanwhile, though, the First American banks face a new problem in the form of poor safety ratings from IDC Publishing Inc. of Hartland, Wis., whose Bank Financial Quarterly ratings are used by many states to decide whether to keep state funds in a bank.


Based on March financial reports, IDC lowered the rating on the Silver Spring-based First American Bank of Maryland to 104 from the already low year-end rating of 123. The rating of the parent company, First American Bankshares Inc. of Washington, dropped to 36 from 109. In a spectrum of ratings in which 300 is high, ratings under 125 are considered below average, representing a bank which is under financial strain. Many states, including Virginia, use 75 as a cutoff point for deciding whether to leave state funds in an institution, said John Rickmeier, president of IDC.

While Tony Zelaznicki, an administrator in Maryland's Office of the State Bank Commissioner, said First American of Maryland is meeting its capital requirements, Mr. Rickmeier said that's not enough to give its financial ratios a healthy rating.

Mr. Rickmeier said, "It's the potential threat to capital that brings the rating down." At the Maryland bank as of March 30, he said, delinquent and non-performing loans were equal to 90 percent of the bank's capital. "I don't care how much capital you have," he said. "How much of your capital is at risk?"

First American of Maryland's Chairman Paul Adams doesn't deny the loan problems, but said they are no worse than those of many banks in the region. "We are dealing with them aggressively, and we are fortunate we have the capital and liquidity to do so," said Mr. Adams, who is also president and chief operating officer of First American Bankshares.

Mr. Adams said the Maryland bank's parent company received a second cash infusion of $39 million in June from its principal investor, Shiek Zayed bin Sultan al-Nahyan, ruler of Abu Dhabi, and that this additional capital is not reflected in IDC's March rating. The $39 million was on top of a $53 million investment in the bank in February. The ruler of Abu Dhabi purchased the ownership position in 1990.

Despite the investigations involving Luxembourg-based Bank of Credit and Commerce International and its links with U.S. banks and possible fraudulent activities, deposits at the Maryland bank seem to be holding steady. Non-performing real estate loans continue to be a problem, said Mr. Adams, but he is confident they can be worked out.

According to the latest official figures available -- for the quarter which ended in June -- deposits at First American Bank of Maryland totaled $1.263 billion as of June 30, down $20 million from three months earlier.

Included in the March amount was $75 million in so-called jumbo CDs, time deposits of $100,000 or more. Those jumbo CDs declined to $34 million as of June 30, more than accounting for the overall decline in deposits. Core deposits, collected through the bank's 45 branches and insured by the Federal Deposit Insurance Corp. for up to $100,000 per account, increased by $61 million during the latest quarter, Mr. Adams said.

The situation was similiar at its Washington parent, which owns banks in Virginia, the District of Columbia, New York, Florida and Georgia as well as in Maryland.

Other banks in the region have fared much worse at the teller window. At Baltimore-based MNC Financial, deposits fell to $15.11 billion from $20.476 billion in the first quarter, according to Bill Ferguson, president of Ferguson & Co., a Washington bank consulting firm.

While not worried about the First American banks' deposits, Mr. Ferguson said he is concerned about the increase in non-performing loans and repossessed assets as a percentage of the holding company's total loan portfolio. At the end of 1988, that ratio was a slim 0.29 percent. Now it is 7.61 percent.

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