Profits, acquisitions predicted for banksThis year turned...

BANKING & FINANCE

December 31, 1992|By David Conn

Profits, acquisitions predicted for banks

This year turned out to be relatively quiet and recuperative for the banking and thrift industries. Failures were fewer than expected; profits, driven by low interest rates, reached record highs. So what's in store for 1993? We asked the analysts.

Barron Putnam, Lace Financial Corp., Frederick: "You're going to see some minor bank failures, a lot less than we had seen in the past."

"The problem area that you're going to see in the future will be due to changing interest rates," he said, noting that the unusually lucrative interest spreads that lenders have enjoyed recently will begin to narrow. The pitfall, Mr. Putnam said, is that some banks may reach for higher yields and ignore the risk that entails.

Arnold G. Danielson, Danielson Associates, Rockville: "One of the interesting things we're going to find is the industry is headed toward a year of overcapitalization," resulting from an ongoing improvement in asset quality. That will translate into "a very good year for profits" as banks set aside less money to cover problem loans.

"They're not going to get anything more out of [net interest rate] margins, but they'll make it up in reduced reserves."

John Heffern, Alex. Brown & Sons Inc., Baltimore: "We will clearly see more acquisition activity in this market, namely from Baltimore to Washington. We will clearly see MNC [Financial Inc.] change hands, although I'm less sure that it will happen in 1993."

Price fund attains $2 billion in assets

T. Rowe Price's Equity Income Fund hit a minor milestone this month: It became the only Price stock or bond fund to hit $2 billion in assets.

The fund, managed by Thomas H. Broadus Jr. and Brian C. Rogers, is seven years old and invests in conservative stocks that pay dividends. Through Nov. 30, Equity Income had a total return of 174.6 percent, compared with the Lipper equity income fund average of 125.7 percent during the same period (although its annualized return since inception was just a shade below the S&P 500).

Two other T. Rowe Price funds, the 42-year-old Growth Stock Fund and the 12-year-old International Stock Fund, are within $35 million of reaching the $2 billion mark.

Chevy Chase officials dispute S&P outlook

Chevy Chase Savings Bank FSB, by far Maryland's largest thrift, with about $5.1 billion in assets, has steadily improved since June, company officials say. Standard & Poor's Corp. sees a little differently.

In a CreditWeek special report issued this month, the New York debt-rating agency affirmed its rating on $130 million of Chevy Chase's subordinated debt, but with a negative outlook. The rating was CC, one step above default, and the negative outlook means S&P expects the rating to drop in the next few years.

The rating, according to S&P, "reflects the thrift's deteriorated 00 asset quality, reduced financial flexibility and failure to meet minimum regulatory capital levels." As a result of the continuing capital pressures, "the thrift's subordinated debt holders face high risk that this debt will not be repaid in full."

But Chevy Chase officials say Standard & Poor's has its facts wrong and should reconsider the year-old rating. The thrift, now profitable, met all its capital requirements in September, said Vice Chairman Alexander Boyle, adding that there is no risk of default on the debt.

"This is just a very dramatic turnaround situation, and it's just not being reflected here."

Banks spur students with math contests

Consider this enlightened self-interest: Recognizing the problems in math education and, no doubt, what those problems mean to their employment efforts, a few area banks have forged creative partnerships with public schools.

Provident Bank of Maryland is sponsoring "Math Mania," a regional competition that presents fourth-graders with a series of math problems from daily life. Provident is donating about $40,000 for the program, including $30,000 in prize money.

And the "First National Bank 24 Challenge," sponsored by the First National Bank of Maryland, is open to students in the fourth through eighth grades in 147 elementary and middle schools.

Here's an example of the "24 Challenge" puzzle that students face. The idea is to take all four numbers -- each number once and only once -- using any combination of addition, subtraction, multiplication or division, to reach a solution of 24. And just to make it more challenging, try solving the puzzle tomorrow, in the midst of your post-New Year's Eve haze.

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