Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post
Newsgroups: americast.wpost
From: americast-post@AmeriCast.Com
Organization: American Cybercasting
Approved: americast-post@AmeriCast.com
Subject: Questions Dog Effort to Sell First American; Federal Help Could Be Needed,
Date: Mon, 26 Oct 92 04:30:31 EST
Message-ID: <11.1992Oct26.043031@AmeriCast.com>

Questions Dog Effort to Sell First American; Federal Help Could
Be Needed, Bank Analysts Say<By Sharon Walsh=Washington Post
Staff Writer=

 In the boardroom of First American Bankshares Inc., the full-
length oil portrait of former chairman Clark M. Clifford has been
replaced by a painting of ships at sea. The bank removed the por-
trait because it was a reminder of the BCCI scandal, which led to
Clifford's ouster 14 months ago.

 But First American, the District's largest bank holding company,
has yet to put the BCCI affair fully behind it. The scandal left
uncertainties about the bank's future ownership and sources of
support that still hang over First American as it opens its books
this week to potential buyers.

 One major question is whether the U.S. government will have to
provide some form of financial assistance to persuade a purchaser
to acquire First American and its troubles.  A number of banking
industry analysts doubt a sale is possible without government
help, and that view is supported by a memo sent to shareholders
in April by the bank's directors.

 But federal banking regulators state unequivocally that no aid
is planned for the sale of First American, because it is not a
"failing" bank. First American President George L. Davis said
last week that the bank's condition has improved substantially
this year, and that government help will not be needed in the
sale.

 Other open questions are: Will the bank be broken into parts to
facilitate the sale? Will it be sold at a fire-sale price? And
will the royal family of the Persian Gulf emirate of Abu Dhabi -
who are majority shareholders of First American - contribute more
money to help cover the bank's losses from bad assets?

 The federal government has ordered that First American be sold
in the wake of the revelation that it was illegally owned by the
Bank of Credit and Commerce International (BCCI). First American
recently received initial, nonbinding bids from potential pur-
chasers, and some of them will begin examining the books today.

 Half a dozen banking companies are seriously looking at buying
First American, according to sources close to the sale. The
bidders are eager to expand their footholds - or establish them -
in the lucrative Washington area banking market.

 While neither First American nor the potential purchasers will
confirm who is bidding, the candidates mentioned most often are
First Union Corp., Signet Banking Corp., Crestar Financial Corp.
and First Maryland Bancorp. In a second tier of "interested look-
ers" are NationsBank Corp. and possibly Mellon Bank Corp. of
Pittsburgh. Whoever buys First American will assume its deposits,
which remain federally insured, at least up to $100,000 per ac-
count.

 First American suffers from a variety of difficulties, some
shared with other banks and some unique. Like many other banks,
it is burdened by problem loans. Its $579 million in bad assets -
loans on which interest is not being paid, and repossessed pro-
perties - exceed its capital, or the cushion it has to protect
against losses.

 First American has suffered from the additional disadvantage of
a flight of deposits spurred by publicity stemming from the BCCI
scandal. Its worried customers took out 12 percent of total depo-
sits last year, leaving it with $5.2 billion.  Depositors were
reminded of the scandal by the indictments in July of Clifford
and Robert A. Altman, First American's former president, for ly-
ing to bank regulators about the bank's ownership by BCCI. Both
have pleaded not guilty.  In light of such troubles, several pro-
fessional banking analysts said First American has too weak a
balance sheet to attract a buyer unless government help is forth-
coming.

 "I don't think there'd be a buyer interested without government
protection (against losses from bad loans) or a willingness to
share in the losses," said Gregory Root, president of Thomson
Bankwatch, a bank rating service in New York.

 "I think it will be done with government assistance," said Tony
Davis, an analyst with Wheat, First Securities Inc. in Richmond.
"The acquiring company could get an agreement where the govern-
ment would reimburse them for losses above a certain amount."

 Those views are buttressed by the bank board's April memo to
shareholders, which recently became public in a court filing. In
it, directors said the bank's huge portfolio of nonperforming
loans "will prevent many of the banking institutions that are the
most logical candidates to purchase First American from pursuing
the acquisition, unless there is an assisted transaction with
loss to the U.S. government."

 But banking regulators, already embarrassed by charges that they
ignored early warnings of the BCCI scandal, strongly deny any
plans for taxpayers' funds to go into the bank.

 "It's totally untrue," said Mac Alfriend, an officer of the
Federal Reserve Bank of Richmond, which oversees First American.
"In a normal situation like this, you might expect assistance be-
cause of the volume of problem assets. But as of now, there's no
government assistance planned."

  First American President Davis said federal help would not be
needed for several reasons. The bank is leaner now, as management
has pared staff from 3,400 to 2,700 since the end of last year.
Bad assets have dropped by $61 million from $640 million earlier
this year. In the six months since the directors' memo was writ-
ten, bank stock prices have surged, and banks are fetching higher
prices, Davis said.  "The bank market has gotten very hot," he
said.

 Furthermore, with First Union entering the local market by re-
cently agreeing to buy Dominion Bankshares Corp., and NationsBank
having an option to buy MNC, the competition for Washington area
banks has increased, sources said.

 That doesn't mean First American will be sold at a premium,
analysts said. "First Union could take the franchise," said Ar-
nold Danielson of Rockville's Danielson Associates, "but the
price will be very nominal."

 First American's desirability will depend in large part on how
the sale is structured, banking experts said. There are essen-
tially three ways the sale could be set up. Perhaps the most
likely plan is to sell the deposits and good assets of the bank,
and to retain the bad loans and repossessed real estate in a so-
called "bad bank." First American's Georgia subsidiary was sold
that way, and the announcement of a similar deal for its New York
branches is expected soon.< Many experts question how the entity
left holding the bad assets would be supported, although Davis
said the remaining capital  would be sufficient.

 The April memo encouraged the majority shareholders - Abu
Dhabi's ruling family - to contribute $200 million to $300 mil-
lion to prop up the bank's bad loans. But the current position of
the Abu Dhabi shareholders, who already have put $180 million
into the bank, is that they would fund the bad loans only if the
bank could not be sold otherwise.  They would then be repaid out
of any stream of income from the bad bank.  Another possibility
is to sell all of First American, good parts and bad together.
But there are few banks strong enough to take on a level of bad
assets as high as First American's, analysts said.



Outlining a third alternative, sources close to the bank said
some of the possible bidders may be interested in purchasing only
one of the bank's subsidiaries. For example, an institution might
want to buy First American Bank of Maryland, but not the District
and Virginia banks.

 Because the bank is eating up capital, sources said, the sale
must be done quickly. Davis has said other banks' examination of
First American should be finished before the end of the year, and
a sale announced by early next year.

"This is a most unusual situation," Davis said. "(The bank) has
been stabilized. The staff is in pretty good shape.  Everything
is very positive. But there's a certain sadness."<02:08 10-
26C9999-----

Copyright 1992, The Washington Post.  This story is from the
Washington Post's Capitol Edition On-Line and is not to be ar-
chived or redistributed.

For more information, send-email to American Cybercasting Cor-
poration (usa@AmeriCast.COM)