Banks sizzle, manufacturers fizzle Financial services in Md. bounced back last quarter

Westinghouse cut more jobs

November 08, 1992|By David Conn | David Conn,Staff Writer

Dividend checks and unemployment checks -- there are no better symbols of the polarized performance of Maryland companies in the quarter that ended in September.

The state's banks and thrifts glowed, as their health continued to improve, and securities firms reported record profits. Some financial services companies even managed to increase dividend payments that had been cut years earlier, when the recession began to take hold.

Meanwhile, layoffs hit or threatened workers in many other companies, from Giant Food, Esskay and the A&P bakery in West Baltimore, to General Motors Corp. and the Chesapeake & Potomac Telephone Co. Hardest hit: the defense industry, whose employees continue to feel the impact of the nation's military cutbacks.

And hardest hit of the defense contractors has been Westinghouse Electric Corp., Maryland's largest manufacturing employer. Last month, the company began laying off up to 1,400 workers at plants in Linthicum, Hunt Valley, Sykesville, Columbia and Annapolis. Those come on top of 2,500 jobs lost during the previous year and a half.

Continued cost-cutting is having an effect on the company's bottom line. In the third quarter, which preceded the layoff announcement, the Pittsburgh-based company earned $14 million, compared with a loss of $1.5 billion a year ago. (Operating profits of $242 million were basically flat.) The company said operating profits at its Electronic Systems Group, which is based in the Baltimore area, rose during the quarter -- primarily because of non-defense contracts.

As a group, defense companies with significant operations in Maryland showed tremendous gains in profitability. The group turned a $1.27 billion loss in last year's third quarter to a profit of $277.5 million in the latest quarter. That turnaround was almost entirely due to Westinghouse, which had lost $1.5 billion in the third quarter of 1991 because of a $1.6 billion write-off in its financial services division.

Still, "the fate of Westinghouse [Electronic Systems Group] may be a little more uncertain than some of the other defense contractors" because of its dependence on Defense Department contracts, said Stephen S. Fuller, professor of urban planning at George Washington University.

Westinghouse is not alone. Bethesda-based Martin Marietta Corp. has laid off about 800 people at its plants in Middle River and Glen Burnie over the past two years. About 150 Grumman Corp. employees have lost their jobs at a machining plant in Glenarm in recent years, and 243 more jobs were lost at an aircraft parts plant in Salisbury.

One seeming success story in defense is AAI Corp. of Cockeysville, whose Connecticut-based parent, United Industries Corp., saw third-quarter profits rise by more than 225 percent. But that improvement also came at the expense of jobs -- the AAI subsidiary has lost about 700 people in recent years.

Although President-elect Bill Clinton has spoken of an industrywide conversion to non-defense manufacturing, "it's a very slow process," Mr. Fuller pointed out. Still, he said, military cutbacks probably will stabilize -- rather than accelerate -- in the next year or so.

"There's no way to get the economy moving again and simultaneously make severe cuts in defense spending," he said.

A nationwide economic burst is likely to help the financial services industry, bankers and analysts say. Banks and thrifts are showing improved third-quarter results, mainly because of government efforts to stimulate the economy.

The Federal Reserve Board's year-and-a-half-long push to lower

interest rates improved the net interest margin of most of Maryland's banks and thrifts. That margin is the difference between the interest lenders pay on deposits and the amount they earn on loans.

The 13 banks and thrifts that have reported third-quarter results showed a 1,300 percent increase in profits. Profits rose to $508.2 million, from $36.5 million a year ago.

Those numbers were driven largely by three institutions: MNC Financial Inc., of Baltimore, whose $82 million loss in the third quarter of 1991 turned into a $4.5 million gain this year; Baltimore Bancorp, which turned a $40 million loss into a $3.3 million profit; and NationsBank Corp. of Charlotte, N.C., which merged and acquired its way from an $81 million profit a year ago to a $350 million profit.

Every bit as important to the banks was a stabilization in asset quality, particularly the real estate loans that sent much of the mid-Atlantic banking industry into a tailspin two years ago. MNC, for instance, had up to $1.8 billion in problem assets last year; that figure fell to $1.25 billion by Sept. 30.

"It looks like the real-estate recovery may have begun in the Washington-Baltimore area," said Robin Oegerle, director of research at Ferris, Baker Watts Inc.

Can investors in banks and thrifts expect more leaps in profits?

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