The Federal Reserve yesterday removed a major stumbling block from the courtship of MNC Financial Inc. and Charlotte, N.C.-based NationsBank Corp., clearing the way for NationsBank's $200 million investment in the parent of Maryland National Bank.
The investment, which was completed yesterday after the Fed acted, gives NationsBank preferred stock equal to about a 16 percent ownership stake in Baltimore-based MNC. NationsBank also gets an option to acquire MNC between now and 1997.
The Fed agreed yesterday not to require NationsBank to apply for permission to take control of MNC. If the Fed had said yesterday's investment put NationsBank in control of MNC, NationsBank would have become responsible for aiding MNC if bad loans threaten the survival of Maryland National Bank or MNC's Washington-based American Security Bank.
"Until we exercise the option and effect the merger, we wanted to make sure the regulators did not deem us to be so in control to trigger those reimbursement responsibilities," said Paul Polking, NationsBank general counsel. "We wanted to be comforted that we would not be held to be in control of MNC simply by making the $200 million investment."
NationsBank spokesman John Cleghorn said neither MNC nor NationsBank expected the investment in preferred stock to make NationsBank responsible for MNC's short-term future. "Both of us were waiting for assurances from the Fed that the way we structured the deal was OK," he said.
But the Fed had put off ruling on whether the investment put MNC under NationsBank's control until only two days before the Sept. 30 deadline for NationsBank to give MNC the $200 million.
Either party could have broken the July investment agreement if it had not closed by tomorrow.
"As a result of this investment, MNC's balance sheet and capital base will be enhanced significantly," said MNC President and Chief Executive Frank P. Bramble. MNC will use most of the $200 million to shore up the capital base of its banks, the company said.
MNC announced that the Fed has also given MNC Chairman Alfred Lerner permission to stay on as chairman until the end of 1994. Absent that permission, Mr. Lerner would have had to choose between his MNC post and his job as chief executive of MBNA Corp., the Delaware credit card company that belonged to MNC until it was spun off last year to raise cash.
The July deal gives NationsBank an option to buy MNC by 1997 for between 125 percent and 150 percent of MNC's adjusted book value, depending on how long NationsBank waits to exercise the option. The minimum price would be $14 a share until Sept. 30, 1995, and $15 a share between Oct. 1, 1995, and Sept. 30, 1997.
`We expect MNC to continue its recovery and look forward to the day when we exercise our option to acquire the company,"
NationsBank Chief Executive Hugh McColl said in a statement.