Crestar plans to charge off $16 million as result of merger Fees involve severance, closing Loyola branches

October 19, 1995|By Bill Atkinson | Bill Atkinson,SUN STAFF

Crestar Financial Corp. said yesterday that it expects to take a $16 million charge on an after-tax basis for expenses relating to its merger with Loyola Capital Corp.

In addition, the company could face one-time charges in the fourth quarter totaling $34 million if Congress forces banks to pay to recapitalize the savings and loan industry's ailing insurance fund. If Crestar ends up paying the maximum amount -- $50 million -- it could cost the company about one quarter's worth of earnings.

Richard G. Tilghman, Crestar's chairman and chief executive, was upbeat about the Richmond, Va.-based banking company's prospects for the remainder of the year.

"Crestar's stand-alone 1995 earnings are on track to meet or exceed analyst expectations, exclusive of one-time charges," he said.

Crestar's stock closed yesterday at $58.75, up 25 cents.

Trading of Crestar's stock on the New York Stock Exchange was halted temporarily yesterday as the company prepared to release its announcement. Analysts thought Crestar was going to say it was in negotiations to be acquired, and one seemed disappointed that it was nothing more than the announcing of the $16 million charge.

"I thought it was going to be something substantial," said Michael Plodwick, an analyst with Deutsche Morgan Grenfell/C.J. Lawrence Inc. "As far as we are concerned, everything is status quo."

The $16 million charge will include severance payments, fees involved in closing seven Loyola branches, six of them in Washington, and buying out employment contracts. A Crestar spokesman did not have figures as to the number of Loyola employees that would be fired in the merger.

"There is always some kind of charge" in an acquisition, said Michael Corio, an analyst with Johnston, Lemon Co. "What you want them to be doing is cutting employees and closing #F branches. They usually save more in a year going forward."

On Tuesday, Loyola's shareholders overwhelmingly approved the merger with Crestar. Loyola has $2.5 billion in assets and 35 branches in Maryland and the Washington, D.C., area.

What remains uncertain is whether Crestar will get tagged with expenses associated with rebuilding the saving and loan insurance fund, known as Savings Association Insurance Fund.

Under proposals in Congress, savings and loans and banks that have acquired thrift deposits, would pay $6.1 billion, or 85 cents for every $100 in insured deposits. About 40 percent of Crestar's $14.8 billion in deposits is insured by the thrift fund. If the proposal becomes law, Crestar faces a one-time charge of $23 million.

The company could also face an $11 million charge in the fourth quarter on Loyola's "bad debt reserve."

Congress is debating legislation that would force thrifts to convert to banks. If that happens, savings and loans could have to pay taxes on their bad debt reserve, which is designed to cover losses and currently is not taxed.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.