European American Reports $137 Million Loss, Receives Infusion of $80 Million in New Capital
Forde, John P., American Banker
NEW YORK -- European American Bancorp lost $137.7 million in the second quarter and received an $80 million capital infusion from its six European shareholder banks in what its new chairman called a strategy "to face our problems now and put them behind us once and for all."
Raymond J. Dempsey, chairman and chief executive officer of the holding company since March, stressed Tuesday that the factors leading to the second-quarter loss "account for all of european American's problems. Each subsequent quarter will be profitable, starting with the third quarter of 1984."
Mr. Dempsey, previously head of fidelcor Inc. of Philadelphia, said that "with the complete support of our six European shareholder banks, we decided to charge off problem loans, our investment in unsuitable computer systems, and other costs now, so that the bank will be on a firm footing for the future."
The quarterly results bring European American's first half loss to $135.7 million, compared with earnings of $18 million in the first half on 1983.
Two of the six European shareholders also announced the effects of their European American involvement. Amsterdam Rotterdam Bank NV said its net earnings for the first half of 1984 would be slightly less than the $32.9 million earned in last year's second quarter. The Dutch bank previously had expected an earnings increase for the period.
Midland Bank PLC of London said it is continuing its plans to reduce its 20% stake in European American to not more than 5% in order to meet Federal reserve requirements in its takeover of Crocker National Corp. of San Francisco.
The four other European shareholders are Creditanstalt-Bankverein, Austria; Deutsche Bank AG, West Germany; Societe Generale de Banque S.A., Belgium; and Societe Generale, France.
The $80 million capital infusion was structured as a combination of $40 million in common stock in the company and a 10-year subordinated note from the shareholder banks that would be passed along as primary capital to the holding company's principle subsidiary.
Even with the infusion, European American's primary capital dipped to about 4.6% of assets as of June 30, said Mr. Dempsey, adding that he expects it to be above 5% by yearend. At the bank, primary capital totaled about 5.6% of assets at the end of the quarter, a ratio that Mr. Dempsey also expects to rise by yearend.
European American is the holding company for European American Bank and Trust Co., which has 93 offices in New York City and Long Island, and for European American Banking Corp., an investment company that specializes in international finance and foreign exchange operations.
European American said in a statement that its loss was caused by a $110.1 million loan loss provision, which equaled second quarter chargeoffs, and $27.7 million in additional chargeoffs and other expenses. European American earned $10.2 million in last year's second quarter and $2.1 million in the first quarter of 1984.
Mr. Dempsey said most of the charged-off loans came from areas that are outside management's "basic New York City-Long Island orientation," such as the energy and foreign sectors and loans involving real estate outside the area.
As of June 30, European American had $296.1 million in nonperforming loans, or 5.2% of total loans. The company said in its statement that the total includes "virtually all" of its $58 million in private-sector Argentine loans, which are on a nonaccrual basis.
As of June 30, European American's loan loss reserve totaled about $63 million, or 1.12% of its $5.7 billion total loan portfolio. Mr. Dempsey said he expects the reserve to be about 1. …