In Spite of Enormous Losses at Crocker, Midland Deems Situation 'Satisfactory:' London Bank Says It Will Inject Still More Capital and Buy Rest of Stock
Ostrow, E. A., American Banker
LONDON -- Despite 1984 losses of $324 million, among the largest ever recorded by a U.S. bank, California's Crocker National Bank can look forward to the injection of more capital this year.
that promise was confirmed here by a senior spokesman for Britain's Midland Bank, which owns 57% of Crocker.
Crocker's 1984 losses skyrocketed in the fourth quarter, when a $215 million loss was chalked up, largely due to a loan-loss provision of $326 million.
A senior Midland bank spokesman said last week that the bank's plans to acquire the remaining 43% of Crocker, "probably by April 1985," were not affected by the poor 1984 performance. At the same time, Midland is injecting another $375 million into its California subsidiary through a $250 million, 8% cumulative convertible preferred stock issue in Crocker, plus a one-year note for $125 million.
Sir Donald Barron, Midland's chairman, said the loan-loss provision was being taken because the parent bank is taking a more stringent view of Crocker's existing portfolio and not because Midland discovered any new -- and doubtful -- loans.
The capital infusion deal had gone forward under the eye of U.S. banking regulators, and, with Midland's new capital, Crocker's capital-to-assets ratio is now "among the best in its peer group of banks," said Sir Donald. The improvement at Crocker, however, came at the expense of a fall in Midland's own capital, which is now done to a bare 4% of assets, though Midland maintained that the Bank of England still regarded this level as acceptable.
Crocker's after-tax loss of $324 million comes after allowing for the $85 million profit on the sale of its San Francisco headquarters, and Midland will take credit for a further $62 million in its accounts because of differences between U.S. and United Kingdom accounting principles.
Sir Donald blamed Crockerhs problems on "continued economic deterioration in the areas in which Crocker operates, the high value of the dollar, large European surplus of grain and wine that became apparent after the 1984 harvest, and weakness in the oil market."
The senior Midland spokesman predicted that "it could be three to five years before Crocker is at an acceptable level of profitability ... Nonetheless, we are going ahead with plans to acquire the remaining 43% of the bank, which is basically sound, it is felt here."
He elaborated on what Midland sees as the reasons for Crocker's disastrous performance: "Oil companies had speculated heavily in California land. With the decline in worldwide oil prices, much of this land was augmented by a decline in agricultural land prices, in some cases by as much as a drop from $10,000 per acre to $6,000 per acre."
The strong dollar, the spokesman added, made wine imports from France and Italy attractive, with a very serious impact on sales of California wines.
"California is suffering from one of its worst depressions in 50 years just now, but we feel this is a passing phase," he said. …