British Bank’s Stock Soars in London on News : Crocker Sale Rids Midland of Heavy Burden
Midland Bank’s agreement to sell Crocker National ends one of the most nightmarish chapters in Midland’s 150-year history.
Crocker’s losses--$10 million in 1983 and $324 million in 1984--quickly became as much of an image problem as a balance sheet liability for Britain’s third-largest commercial bank.
The magnitude of the problem was measured Friday by the London stock market’s reaction to Midland’s sale agreement with Wells Fargo. Even though terms of the agreement mean that Midland is left with a $3.1-billion loan portfolio--including about $2 billion in loans originally negotiated by the Crocker management to debt-strapped Latin American countries--the value of Midland stock soared more than 14% in four hours of heavy trading on the news of the sale.
“Just the Crocker name frightened people away,” noted Keith Brown, partner and bank analyst at London stockbroker W. Greenwell & Co. “They (Midland) saw the chance to get out and they jumped. On balance, it’s a good move, and the market reflected it.”
Midland also carries on its books $500 million in California real estate and agriculture loans, all of which are classified as problem loans.
The agreed price of $1.08 billion that Midland expects to receive for Crocker is almost identical to the $1.09 billion that it paid for Crocker in 1980.
Midland Bank officials admitted Friday that--despite a major reorganization completed last year, including a complete management turnover--it would have taken several years to attain what Midland considered acceptable profit levels.
Crocker’s first reported losses came in late 1983, more than two years after Midland announced its proposal to acquire a majority interest in the bank. While these losses stemmed mainly from the collapse of California agricultural and real estate values, areas where Crocker was particularly vulnerable, London bank analysts believe the fact that Midland did not assume complete management control sooner was a significant contributing factor to the debacle.
Took Direct Control in January, 1984
“The mistake Midland made was not to take management control from the start,” Brown said. “This was at the root of the evil.”
Under terms of Midland’s acquisition, Crocker management was permitted to retain its independence. Only in January, 1984, when mounting losses became apparent, did Midland take direct control.
“We didn’t manage it badly; we didn’t manage it at all,” noted Alan D. MacDonald, Midland external affairs manager.
Midland officials said they pumped large sums of capital into Crocker, seeing it as a vehicle to expand their U.S. activities into other states. But deregulation occurred more slowly than expected, and Crocker management plowed the capital into real estate.
In addition to the heavy financial losses, Midland officials talked Friday about the drain on Midland’s management. “The demands on management were tremendous, and people with necessary skills were in short supply,” spokesman Gordon Marples said.
Midland’s initial decision to buy Crocker came at a time when stringent exchange controls were severely hampering British banks with limited foreign operations. In addition to providing a foothold in the expanding American market, Crocker offered Midland the flexibility of a valuable, stable deposit base in a non-sterling area.
The exchange controls were subsequently lifted by Prime Minister Margaret Thatcher’s Conservative government following her election in 1979 and have not been reimposed.
“With the major technological and regulatory changes which have taken place since we originally invested in Crocker, we are confident we can meet the U.S. banking needs of our domestic and multinational customers without owning a U.S. domestic banking network,” Midland’s chairman, Sir Donald Barron, said in a tatement issued here Friday.
British banking analysts noted Friday that the sale of Crocker would permit Midland to conduct investment banking in the United States. U.S. law, they said, does not allow a company to conduct both commercial and investment banking operations.
