Magazine article American Banker

Stock Issue Will Be Needed to Bolster Balance Sheet

Magazine article American Banker

Stock Issue Will Be Needed to Bolster Balance Sheet

Article excerpt

Stock Issue Will Be Needed to Bolster Balance Sheet

The new, improved Chemical Banking Corp. will depend on $650 million in cost savings and a $1.25 billion common stock offering to turn two mediocre balance sheets into a single stronger one.

The bank intends to sell new common stock when the merger is completed around the end of the year, a move that will add close to a full percentage point to capital ratios of the combined Chemical Bank and Manufacturers Hanover Trust Corp.

Productivity Expected to Gain

Slashing expenses - mainly by shuttering dozens of branch offices - should raise profitability and fatten the cushion against loan losses.

"They're going to save a lot of money and that'll cover a lot of bad real estate," said one capital markets specialist, referring to the problem that has become a millstone for both banks.

However, a $550 million charge to cover restructuring costs will offset most of the savings in the first year. Nevertheless, the new Chemical expects to bring its Tier 1 capital ratio above 6% almost immediately.

That shouldn't be too hard. Even without the offering, had the merger been completed June 30 the new Chemical would have logged a second-quarter Tier 1 capital ratio of 5.57% - well above the level required under the risk-based capital rules scheduled to take effect in January 1992. Capital ratios of two local competitors, Chase Manhattan and Citicorp, are in worse shape.

"After the stock issue, new Chemical's capital ratio will certainly be higher than Chase. …

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