Americans' illiquidity of concern to Baldwin

Mercantile expects its stock to return to investors' favor


April 27, 2000|By Bill Atkinson | Bill Atkinson,SUN STAFF

H. Furlong Baldwin, chairman and chief executive of Mercantile Bankshares Corp., told shareholders yesterday that he has "several grave concerns" about the economy.

Baldwin, 68, also encouraged investors to have faith in Maryland's largest independently owned banking company, though its stock price is down 23 percent from its 52-week high of $39.375. The shares fell 50 cents yesterday to $30.3125.

"The market will ultimately shake out, and then investors will turn to profitable companies with capital, liquidity and positive cash flow," Baldwin told about 60 shareholders and employees attending its annual meeting at the company's downtown headquarters. "Our commitment is to remain clearly in that category."

In a six-minute speech, Baldwin said Americans are speculating on stocks and have 56 percent of their assets in the market, compared with 28 percent in 1989. People are further in debt with their mortgages and home equity loans. While households have $30 trillion in assets, only a small portion is in cash, "suggesting serious illiquidity," he said.

In addition, investors have borrowed heavily to invest in stocks.

"This, unfortunately, is primarily by the unsophisticated," Baldwin said.

Baldwin did not predict a financial calamity, but he does expect "reversals in this stock market."

There are few banks that could weather an economic downturn better than Mercantile, analysts said.

"The bank has a balance sheet that is solid as a rock," said Angelina Billon, senior bank analyst at Johnston, Lemon & Co. in Washington. "They are just a consistent performer, a well-managed company. They could easily weather a changing economic scenario."

Of the 60 largest banking companies in the country, Mercantile received the highest ranking for its 12.7 percent equity-to-assets ratio, which measures financial strength.

The data for the survey, gathered by SNL Securities LC, a Charlottesville, Va.-based financial research and publishing firm, also ranked Mercantile second with a return-on-average assets of 2.07 percent.

The ratio measures how profitably banks deploy their assets, with the average ROA at 1.31 percent last year.

The bank ranked fourth in the group with an efficiency ratio of 45.8 percent. The ratio measures the amount of money needed to generate $1 in revenue.

That means it costs Mercantile 45.8 cents to generate $1 in revenue. Most banks of similar size are typically in the mid-50s range.

Baldwin said he believes that some "radical changes" have occurred among investors. Several years ago, many fawned over the mega-banks created by huge mergers. But now, those stocks are being pummeled.

He believes that, to thrive, Mercantile must continue to offer superior service and expand commercial lending and wealth management services "further afield."

Eventually, he said, investors will gravitate toward those somewhat smaller banks such as Mercantile that offer more personalized service.

"What is becoming obvious is that the difference between the two styles is increasingly apparent to the public that wants a relationship with its bank," Baldwin said.

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