MNC Financial, which is the largest bank holding company in Maryland, is in a position similar to that of a city after a hurricane has passed through. The damage has been tremendous, and some problems might still turn up, but the worst is over, and the cleanup is under way.
The damage, of course, is the result of a collapse in the commercial real estate market that left many large borrowers unable to meet their interest obligations.
Last year, MNC, which owns Maryland National Bank and American Security Bank in Washington, lost $70 million, but had it not been for a $444 million profit from the sale of its credit card business, the loss would have been $514 million, greater than the $440 million deficit of 1990. However, there was a tiny profit of just over $1 million in the first quarter of this year, thanks to the sale of profitable securities. Otherwise, MNC would have been $41 million in the red for the quarter.
Still, the situation is much improved at MNC, and local analysts who follow the company agree. There doesn't seem to be any substantial number of non-interest-paying loans that haven't been accounted for, and operating costs have been reduced. Says David S. Penn, bank analyst for Legg Mason, "MNC has turned the corner, and, for the first time, there's solid evidence that their non-performing assets are declining faster than write-offs."
The climate for most of the banking industry has improved as the recession appears to be ease. Not only have delinquent loans bottomed out, but the important retail loan business has improved.
Anthony Davis, analyst for Wheat First Securities, notes that MNC's reduced work force is probably within 1 percent or 2 percent of its ultimate low. He also notes that by the end of this year, the so-called non-performing assets should be reduced by $300 million to $400 million from the current $1.725 billion total.
Mr. Davis also expects MNC to have a profit this year, a very modest one of about 10 cents a share. He foresees a substantial improvement next year -- earnings of 35 cents a share, or at least $30 million.
John Heffern, vice president and banking analyst for Alex. Brown & Sons, says that MNC "has made terrific progress in stabilizing its situation." He says that recoveries for companies that have been hit hard, as has MNC, are "not often smooth and uninterrupted and that there will be disappointing quarters here and there."
Mr. Heffern points out that MNC's banks still have a high level of problem loans, which not only affects potential earnings but discourages other large banking companies that could be attracted to MNC as a buyout target.
There are two things, says Mr. Heffern, that could propel the price of MNC shares, which closed at $8.75 on the New York Stock Exchange yesterday. One would be a "surprisingly good quarter and a big decline in problem loans." The other would be mention of a buyout, whether rumor or fact.
All the analysts think that although MNC has a strong franchise in this area, other banking companies are not interested in it until the problem loans are diminished. Analyst Anthony Davis said it would cost MNC $250 million to $300 million to sell properties at today's prices, reducing its capital below the level required by banking regulators.
The analysts point to MNC's book value of about $10.30 a share, less than $2 above the market price. They doubt that any takeover bid in the foreseeable future would be for more than book value.