2 venture capitalists work to ease creditAlmost a decade...


January 07, 1993|By David Conn

2 venture capitalists work to ease credit

Almost a decade ago, venture capitalists Harvey Branch and Bill Gust went out and raised $19 million for what they called Chesapeake Ventures. Now that Chesapeake is winding down, the partners are looking around for something new. They believe they've found an opportunity in the credit crunch for small, low-tech businesses.

Last year, Mr. Branch and Mr. Gust tried to raise about $40 million from some public pension funds. Their plan: to invest the money in conservative securities and use the nest egg to provide credit guaranties for small businesses to borrow money from banks. In return, they would receive fees and interest for their "letters of credit" -- and an equity stake in the businesses.

But the idea wasn't intriguing enough to persuade investors to part with $40 million. "The environment to raise money in general is very poor," Mr. Gust said, which was the reason for the credit guaranty company in the first place, of course.

Mr. Branch hasn't given up; he's just lowered his sights a bit. He and partners in Philadelphia and Atlanta are trying to raise $5 million to $10 million to launch a similar venture.

Mr. Gust, still convinced of the need to ease the credit crunch through nontraditional financing, is looking at "other options."

Shlay to update study on mortgage lending

Philadelphia may be Anne Shlay's new home, but her heart is still in Baltimore. Charm City will be the subject of a mortgage lending study by the former professor at the Johns Hopkins Institute for Policy Studies.

Ms. Shlay, who is now at Temple University, will follow up on her 1988 study, which covered lending patterns from 1986 through 1991. Her new study will benefit from the 1990 Home Mortgage Disclosure Act, which requires mortgage lenders to report data for loan applications as well as for approvals.

The study is being sponsored by the nonprofit Maryland Alliance for Responsible Investment, which has pushed the region's banks since 1986 to lend more money in poor neighborhoods. MARI has received $67,000 in pledges so far, according to steering committee member Janelle Cousino, and hopes to raise an additional $25,000.

The group has some unlikely bedfellows -- most of Baltimore's major banks have made donations for the study. One reason: The banks want to determine whether lending to lower-income borrowers is less risky than regulators believe. If so, the banks could set aside fewer reserves.

The city and state also are contributing to the study.

The advisory committee helping to design the study is co-chaired by former Maryland National Bank Chairman Grant Hathaway and state Del. Kenneth C. Montague Jr., D-Baltimore. The report should be done by this spring, Ms. Cousino said.

Bank of Baltimore draws Signet alumni

Slowly but surely, Baltimore Bancorp is becoming Signet Banking Corp. north. That may be an exaggeration, but only a slight one. Consider some of the alums from Union Trust Co., a local bank that became part of the Signet empire.

First there was Charles "Buck" Whittum Jr., the former Union Trust executive vice president who came out of retirement to be chief executive officer at Baltimore Bancorp in late 1991. He re-retired in August 1992.

Then there's Bancorp President Alan M. Leberknight, who left Signet last year, 10 years after Mr. Whittum hired him. Other alums: Thomas M. Scott III, who heads Bancorp's real estate operations, and Robert C. Brennan, the Bank of Baltimore's head of commercial lending.

Now come two more bankers from Signet:

Virginia W. Smith, president of Signet's mortgage company, last month became the Bank of Baltimore's senior vice president for consumer lending. Ms. Smith is on the boards of the United Way's Management Resource Center, the Maryland Committee for Children and Catonsville Community College.

Elizabeth M. Wright, vice president of residential construction for Signet, has become Bank of Baltimore's senior vice president for residential construction. She is on the board of St. Paul's School for Girls and the finance committee of the Baltimore Housing Partnership.

Eschew thrift stocks for banks, Sochol says

In September, Legg Mason bank analyst David B. Sochol predicted that mid-Atlantic thrift stocks would continue to perform well, bank stocks would end their brief downturn, and the recession would not do a "triple-dip."

Since then, Legg's Mid-Atlantic Thrift Index rose 10.7 percent, its Mid-Atlantic Bank Index was up 10.9 percent and every almost economist in the nation declared the recession over.

So what's next? In his latest bank and thrift quarterly review, Mr. Sochol warns investors to step back from thrifts and stick with the quality regional banks.

Despite a 35 percent gain in regional bank stock prices last year, rising earnings left the group with only a marginally higher price-to-earnings ratio of 11.9 percent in December, Mr. Sochol notes.

So here are his criteria for finding that perfect bank stock for the new year: tangible equity-to-assets greater than 6 percent; fourth-quarter annualized return on average equity greater than 10 percent; P/E ratio 9.5 times the trailing 12-month earnings per share, or less; loan loss reserves greater than 80 percent of nonperformers; nonperformers less than 3 percent of total assets; and a cash dividend.

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