There's a story making the rounds in local real estate and banking circles: The nation's mayors recently gathered for a prayer breakfast, and David Dinkins of New York asked the Lord to ensure his re-election by ridding the city of crime.
"That will take five years," God answered, to Mr. Dinkins' dismay.
Mayor Tom Bradley of Los Angeles then asked to be rid of his city's crime and smog in order to guarantee his re-election, to
which the Lord answered, "Ten years, no sooner."
Then, Washington Mayor Sharon Pratt Kelly knelt and prayed. "To be re-elected, I need all the empty office space in the District to be fully leased," she implored.
God paused for a long moment, and responded: "I don't think I'll be around that long."
* * * One man who isn't laughing is Hugh L. McColl Jr.
Mr. McColl, president and chief executive officer of Charlotte, N.C.-based NationsBank Corp., recently placed a $200 million bet that real estate problems in Washington -- and Baltimore -- will not sink MNC Financial Inc.
The Baltimore-based banking company, parent of Maryland National Bank and American Security Bank in Washington, has reduced its portfolio of non-performing assets in the past year from $1.8 billion to just under $1.4 billion as of June 30. Most of those troubled assets are commercial real estate loans in the Baltimore-Washington corridor.
Although there's no trigger date for the "stakeout merger" signed by the two banking powers July 16, many believe that if MNC can reduce its problem portfolio to below $1 billion, NationsBank will quickly consummate the deal. And if Mr. McColl's optimism is not unfounded, maybe other Baltimore-area banks can take heart.
The market's real estate morass is one of two major problems confronting many Baltimore-Washington area banking companies. The other: a paucity of demand to make business and consumer loans, the old-fashioned way banks earn money.
Despite those two problems, Maryland's largest banks reported almost uniformly higher revenues and earnings during the second quarter. And banking analysts predict that those profits will continue.
"Banks are going to do well for the rest of this year at least," said Barron Putnam, president of Lace Financial Corp., a Frederick-based bank-rating company.
Profits were driven, in large part, by the sharp drop in short-term interest rates. That has allowed banks to widen net interest margins, the spread between what they pay the government and depositors for money and what they earn on those funds by lending to borrowers or by investing in securities. The margin is 4.27 percent -- the highest in more than a decade -- and is likely to get even wider this year.
Analysts and banking consultants point to a few other factors in the industry's remarkable resurgence: higher revenues from non-interest, or fee-based, activities; the fruits of a year of brutal expense-cutting at some companies; and a slow reduction in non-performing assets.
Still, that last category triggers worries about the future of banking companies. Although the numbers show improvement from previous quarters, in many cases it's only slight improvement.
And some banks, including MNC, are still watching good loans turn bad -- even as they dispose of old problems. That indicates that the economy is not yet strong enough to save the weakest projects.
In the second quarter, for example, MNC reduced the amount of troubled assets by $349 million, partly from sales and restructurings, but then shifted an additional $122 million in assets to the non-performing column -- a net decrease of $227 million. The company still managed to report a $2 million profit for the quarter -- including $36 million in gains from securities sales -- compared with a $1.1 million profit in the first quarter of 1992 and a loss of $82.3 million in the second quarter of 1991.
Similarly, Baltimore Bancorp reduced its troubled assets to $226 million as of June 30, from $238 million three months earlier.
Part of that reduction came as the level of repossessed real estate was lowered by $26.5 million in the second quarter. The company had to add $13 million in new foreclosed properties during the period, however, leaving $54.8 million in real estate acquired through foreclosure at the end of the quarter. The parent of the Bank of Baltimore earned $5.8 million in the quarter, up from $5.1 million in the first quarter of 1992, and from $3 million in the second quarter of 1991.
Some of last year's worst performers have reported dramatically accelerated profits, while steadier companies such as Mercantile Bankshares Corp. produced solid earnings but percentage increases that barely raised an eyebrow.