When the Friendly Neighborhood Banker Lives Far Away

July 26, 1992|By BRIAN SULLAM

The new world of American banking arrived in Baltimore on July NationsBank, America's fourth-largest banking company, announced it had invested $200 million and bought a 16 percent interest in MNC Financial, parent of Maryland National Bank. It also obtained an option to purchase the entire company by September 1997.

This is not a future that many in Baltimore are welcoming.

If NationsBank, based in Charlotte, North Carolina, and formerly know as NCNB, acquires MNC, the banking company will be one more local company that is no longer locally controlled. Home-grown companies such as Noxell, Monumental Corp., Maryland Casualty, The Baltimore Sun and Fidelity and Deposit are now subsidiaries of out-of-state or foreign corporations. Local banks such as Union Trust Company of Maryland and Central Savings Bank are owned by out-of-state companies. First Maryland Bancorp is wholly owned by Ireland's largest banking company. Whenever a local company is taken over, the impression is reinforced that Baltimore is nothing more than a branch-office town with little control over its economic destiny.

The area's future economic health becomes even more critical when the takeover involves a large local bank such as MNC, which has about $16.6 billion in assets and 241 branches. Banks have a special place in an economy. They collect vast amounts of capital through deposits and reallocate it through loans. A bank's lending policy can exert tremendous influence in an economy. A very conservative bank, which makes only the safest loans, is not likely to take the risks associated with financing new businesses. Seeking high returns, some banks may participate in syndicated loans to foreign companies, leveraged-buyout -Z deals and other risky propositions.

Even in its current weakened financial condition, MNC dominates the Maryland banking market, controlling about 25 percent of the state's bank deposits. It owns the second-largest bank -- American Security -- in Washington, D.C. With control over such large amounts of capital, lending decisions made in Baltimore can have reverberations throughout the region.

Should NationsBank exercise its option and buy MNC, will the region suffer?

It can be argued that during the 1980s, MNC was very good for this community. MNC, which had been relying on real-estate lending to fuel its growth, was a prominent player in the area's overheated real-estate market. The bank's loose lending policies fueled local real-estate development, created jobs and generated profits. From those large profits, the company paid taxes and made charitable donations. The bank and the community prospered.

MNC had become the 26th-largest bank in the nation in 1990, and it appeared on its way to becoming one of the super-regional banking companies that would dominate American banking during the next decade. But that rosy future was cut short in 1991.

MNC's loose lending inevitably created a large number of bad loans, and MNC quickly discovered that its real-estate collateral was not as good as it had thought. As MNC added millions of dollars to reserves to cover possible bad loans and as regulators demanded more stringent lending standards, it piled up quarterly losses and began eating away its capital. With lower amounts of capital and thousands of troubled loans, the company cut off its lending. It began to turn away long-time customers, who either turned to other banks for capital or just didn't go through with their projects.

MNC had to concentrate its efforts on keeping its financial head above water. It sold off valuable assets to raise capital, it reduced its payroll in order to cut costs, and it made very few new loans. MNC was no longer an economic powerhouse. Moreover, it was no longer the promising super regional bank that was going to remain independent during the period of bank consolidation.

By the beginning of this year, the worst of MNC's financial crisis was over, but there was still a tremendous uncertainty about the company's future. No one had been able to gauge the true condition of its troubled loan and real-estate portfolio.

Some analysts felt that MNC would not go under and be taken over by the Federal Deposit Insurance Corp., but would limp along struggling under the burden of its non-performing assets. In an effort to cut costs, MNC would continue to shrink its staff, reduce it assets and gradually waste away.

Even though it is saddled with a large portfolio of bad loans and repossessed real estate, MNC -- with its large market share -- was an attractive target for an aggressive company interested in entering the Baltimore-Washington market.

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