Local investment firm posts sparkling returnSo who says...

BANKING & FINANCE

February 04, 1993|By David Conn

Local investment firm posts sparkling return

So who says you can't do world-class (or at least "national-class") investing from Baltimore?

The latest ratings of the nation's investment managers, compiled by Rockville-based CDA Technologies, shows that Baltimore's Leominster Inc. last year had the 13th-best return in the nation among firms with at least $100 million under management.

For companies required to report their holdings to the Securities and Exchange Commission -- those with at least $100 million -- CDA took their portfolios on Sept. 30 and repriced the holdings as of Dec. 31. The quarterly returns were added to the performance over the first three quarters.

Using that method -- which disregards any buy or sell decisions after Sept. 30 -- Leominster earned a 27.4 percent return for its clients in 1992, compared with the 7.4 percent return of the Dow Jones industrial average. Leominster had a "beta coefficient" of 1.34, which means that the company's investments were 34 percent more volatile than the S&P 500 index.

The best performance from a firm with at least $100 million under management was a 49.4 percent return from Glickenhaus & Co. in New York, with roughly the same beta.

Among Leominster's better-performing issues last year were Citicorp, Owens-Corning Fiberglas Corp. and ITT Corp.

"We are encouraged that our value-oriented, partially contrarian investment philosophy is performing favorably for our clients," said L. Gordon Croft, a former T. Rowe Price Associates director who founded Leominster nearly four years ago. The firm serves mostly institutional clients.

Legislature considers LLC for professionals

Those who enjoyed the General Assembly's work last year in creating the limited liability company, or LLC, will love this year's version: the LLC for professional corporations -- namely doctors, lawyers and accountants.

Maryland became one of a growing number of states to authorize LLCs, a hybrid of partnerships and corporations. They're intended, among other things, to make it easier for small companies to attract financing.

But last year's LLC law lacked a provision allowing professionals to set up the hybrid, which combines the tax benefits of a partnership with the liability protections of a corporation.

Last week, Dels. Robert L. Ehrlich Jr., a Republican from Baltimore County, and Kenneth C. Montague Jr., a Baltimore Democrat, filed a bill to allow professionals to join the club.

The bill is unlikely to face much opposition, but its fate is linked to that of a bill pending in the Senate. That one would clarify Maryland's law regarding professional corporations, essentially by protecting one member of a "P.C." from liability for the actions of another, as long as the two didn't work together and had no supervisory relationship.

If the Senate bill moves, the House LLC bill should follow.

Compromise is seen on 'Biggus bill'

Speaking of legislative affairs, Maryland's bankers, retailers and other consumer lenders believe they have worked out a compromise with state officials and consumer advocates on the infamous "Biggus bill."

The House Economic Matters Committee has scheduled a hearing Wednesday on a proposal to repair what the lenders believe is a potentially chaotic situation that arose from a Maryland Court of Appeals ruling last fall in a case called Biggus vs. Ford Motor Credit Co.

The ruling called into question the duties of consumer installment lenders, including which documents must be signed, how repossessions may be conducted and when notices must be mailed to borrowers.

Those questions, in turn, threatened the validity of many loans made by retailers and financial institutions over the past four or five years, according to the lenders.

So after failing to get the legislature to pass a remedy during the special session last fall, industry members have been working with state officials and consumer advocates on a compromise that spells out exactly what a lender must do to make a valid loan.

One thing the bill will require lenders to do is specify -- in writing, in advance -- the section of the law under which they intend to make the loan.

Baltimore Bancorp charges off 'bad' loans

In Baltimore Bancorp's fourth-quarter earnings, one number stands out: the $28.7 million in charge-offs, or loan losses, during the quarter -- more than twice as much as in the previous three quarters combined.

The parent of the Bank of Baltimore still has its share of asset-quality problems, but that sharp increase came more from "loan splitting," according to the company and an analyst.

With loan splitting, a bank looks at an otherwise profitable project it has financed and determines what percentage of the nonperforming loan the borrower could repay if the terms were renegotiated to today's rates (the good part), and what percentage is beyond hope for the short term (the bad part).

Instead of the typical loan workout, in which the borrower is encouraged to "perform" on the entire loan, loan splitting restructures only the good part into a "new" performing loan, at a lower interest rate, that promises to add to earnings in the future. The bad part is immediately charged off, although not forgotten, says Treasurer David Spilman.

"As far as the borrower's concerned," he says, "we still want the money."

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