Investors bullish on MNC Financial Firm's 'fundamental turnaround' is cited as parent of Fidelity funds boosts stake

October 20, 1992|By David Conn | David Conn,Staff Writer

The bulls have continued to stampede for MNC Financial Inc. in the past few months, led by FMR Corp. of Devonshire, Mass., the parent of the Fidelity Investments mutual fund family.

FMR has boosted its stake in MNC to nearly 10 percent of the banking company's more than 89 million shares outstanding, from the 4.5 percent stake that it held on June 30.

That would place Fidelity ahead of MNC Chairman Alfred Lerner, who held 8.55 million shares as of the company's April proxy statement. Those shares, assuming Mr. Lerner hasn't bought or sold any since, would represent 9.56 percent of the outstanding shares MNC had on Sept. 30.

Fidelity's portfolio manager, Bruce Herring, would not comment on the size of his company's holdings in MNC. Fidelity is required to report large stock sales and purchases to the Securities and Exchange Commission, but not until 45 days after the end of each quarter.

Mr. Herring did acknowledge that Fidelity has been buying MNC for several years, since the stock traded at about $5 a share, and that "we bought some" in the third quarter.

FMR's stake in MNC was reported in the American Banker newspaperMonday and was confirmed separately yesterday.

The stock closed on the New York Stock Exchange at 10 7/8 yesterday, unchanged on the day, but up almost 7.5 percent since a brief sell-off after the July announcement that NationsBank Corp. of Charlotte, N.C., had signed an option to acquire MNC within five years.

That deal appears to have brought a halt to the roller-coaster ride that longtime MNC investors have taken since October 1989, when the company's stock hit a high of more than 29.

After that, MNC's real-estate-related loan problems brought it perilously close to failure, Chief Executive Frank Bramble has acknowledged, and the stock fell to a low of 1 7/8 in January of last year.

It rebounded to a high of 12 this summer, before the NationsBank announcement.

Aside from the prospective purchase, Mr. Herring said the Baltimore bank holding company makes sense as an investment. "The first thing, and most importantly, is the fundamental turnaround at MNC," he said.

With non-performing assets falling at a rate of about $125 million to $175 million each quarter, with earnings up and fresh capital from the $200 million that NationsBank invested last month, "this company's getting healthier," Mr. Herring said.

And if, as many investors believe, NationsBank ultimately exercises its option, stockholders today could lock in a one-year return of almost 40 percent.

That is because the purchase price, any time before September 1993, is the higher of 1.25 times adjusted book value or $14 a share.

The company's current book value of about $10.50 a share would be adjusted to include the roughly $1.50 a share that MNC holds in unrealized securities gains, Mr. Herring pointed out.

So, 1.25 times $12 would be $15, or about a 40 percent increase from yesterday's closing price of 10 7/8 .

But the overall annual return on investment would diminish for each year that NationsBank delayed the acquisition, and there is always a chance that the merger could fall through.

Another investor who is convinced of the MNC story is one of the company's former detractors, Emanuel Friedman, of Friedman, Billings & Ramsey, a Washington research advisory firm that specializes in financial companies.

Although he said he never sold MNC short -- an investment that profits when the stock price falls -- Mr. Friedman said he had been telling clients to avoid MNC, and most regional banking companies, until the spring of last year.

"They now have more capital than most banks in the country," Mr. Friedman said.

And with NationsBank waiting in the wings: "I view it as a very modest risk relative to the market."

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