First Maryland thrives as others drown in red ink


After five years of strong earnings growth, First Maryland Bancorp profits plunged 40 percent, to $44 million, in 1990, but its overseas parent, Allied Irish, is quite likely viewing the results with more relief than consternation.

For First Maryland has remained solidly profitable, extremely well capitalized and in a position to prudently expand -- to use a bankerly phrase -- at a time when other affiliates of European banks have been battered and are more likely to shrink than enlarge. Deposits are now flooding in, providing a relatively cheap and stable source of funds, at the same time that capital constraints on other banks have provided what First Maryland Chief Executive Officer Charles Cole sees as openings for business.

As a result, Mr. Cole said, First Maryland will continue to grow. He said the bank has acquired 4.9 percent shares in other institutions in Virginia, Maryland and Pennsylvania. And the bank may go even further afield.

"We have a very strong parent which has the flexibility to support us becoming national," Mr. Cole said. But he said that won't happen soon. "We would have an expansion program that is steady, not have huge leaps at one time."

Only a year and a half ago similar comments were being made by other local banks tied to huge, rich banks abroad, but $H expansion plans have largely been drowned in an ocean of red ink.

Although largely obscured by the problems of major domestic banks based in Baltimore, New York and Boston, some of the largest, strongest and most respected names in global banking have recently been bloodied in the United States and replaced ** ambition with triage.

While these institutions haven't cried out for federal assistance or been accused of potentially undermining the financial fabric of the U.S. economy, they have underscored how tough, and painful, the U.S. market can be.

Take, for instance, the case of Bank of Ireland, Allied Irish's main rival in its home market. Beguiled by Allied Irish's success in the United States and seeing the then-heady growth of the New England economy, Bank of Ireland purchased First NH Banks of Manchester, N.H., in 1988, only to see the region, and the bank's profits, immediately sour. Last year, First NH lost $96.1 million, and the parent bank coughed up an additional $145 million in capital to repair a troubled core.

A similar reversal was announced by NatWest Bancorp, the New York and New Jersey operations of the major London-based clearing bank, National Westminster. Within the past three years, it made two expensive acquisitions in New Jersey and indicated Pennsylvania, Connecticut and Massachusetts were slated for further expansion.

Now, those plans appear to be on hold. Last year, NatWest Corp. lost $352 million, topping the infamous $324 million lost in 1984 by Crocker Bank, at the time the San Francisco affiliate of Britain's Midland Bank.

Given the likelihood that NatWest Bancorp will lose money this year, International Reports, an industry newsletter on global economics, calculates NatWest will have wiped out every dime it has earned since entering the U.S. market through another acquisition 11 years ago. On Friday, the bank announced that the head of its U.S. banking operation had been replaced.

Almost as badly battered was Marine Midland of Buffalo, N.Y., an affiliate of Hongkong & Shanghai Banking Corp. Marine Midland lost $319 million last year, largely because of bad real estate loans.

All of which, curiously, may do little to deter other foreign banks from trying again.

As evidence, Banco Santander of Spain purchased last week warrants and shares potentially equivalent to a 24.9 percent stake in First Fidelity Bancorporation of Newark, N.J. Other deals may be in the works.

"Banks that understand what it takes to make money in retail banking see a lot of change in the U.S.," said Dominic Casserley, a partner in the financial institutions group of McKinsey & Co., a New York consulting firm. "Weak players are dying, and that presents opportunity."

History suggests, however, that taking advantage of those opportunities is difficult.

Indeed, one of First Maryland's advantages may have been its tempered, non-global outlook, derived from a long-time local management that set a strategy premised on the prospect that deflation in asset values was as likely as appreciation. The lending portfolio is diverse and critical capital ratios are robust -- both signs of an institution willing to emphasize caution rather than aggressive growth.

And that is unlikely to change. In the chief executive's comments fronting First Maryland's 1990 annual report, Mr. Cole dispensed with the common puffery most company heads use to fill the space. Instead, he warned of tough conditions. "Commercial and residential property values are forerunners of other market problems rather than after-effects of economic deterioration," he said. A deteriorating national economy and the inability of borrowers -- individual, government, and corporate -- to repay their debts all presented problems for banks, he said.

The result? In times of trouble, pessimism appears to encourage confidence. Perhaps because of problems at other area banks, money flooded into First Maryland last year. Its overall deposit base grew by $1 billion, or about 21 percent, providing a relatively cheap and stable source of funds.

At the same time, the restrained lending capacity at other banks provided First Maryland access to customers previously locked into other banks, Mr. Cole said.

But First Maryland continues to be cautious, maintaining large reserves and increasingly shunning short-term money, depressing potential profits but enhancing stability.

"I'm not downplaying earnings, but today the most important elements are liquidity and capital," said Mr. Cole. "That will win the game."

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad