Britain's Biggest Bank Sets Aside $760 Million for Loan Losses

Times Staff Writer

Britain's largest bank on Tuesday joined its American peers by setting aside a huge sum in anticipation of losses on its loans to struggling Third World borrowers.

National Westminster Bank said it was adding the equivalent of about $760 million to its bad-debt reserve. The London-based bank did not specify how large a loss would result from the move, but analysts said the effect would not be as severe as on many American banks.

Two more major American banks on Tuesday also announced large increases in reserves to cover potential losses in the developing world.

New York's Manufacturers Hanover, with one of the largest debt exposures in the Third World, said it was adding $1.7 billion to its loan-loss reserve, leading to a net loss of $1.4 billion for the second quarter and $1.05 billion for the year.

Bankers Trust New York is adding $700 million to its bad-loan account. The addition is expected to result in a second-quarter loss of about $570 million and a full-year loss of $150 million to $200 million, company officials said.

Manufacturers Hanover is the country's sixth-largest bank holding company; Bankers Trust ranks eighth.

Also Tuesday, two smaller U.S. banks--Chicago's Northern Trust Corp. and St. Louis' Centerre Bancorp--joined the growing list of banks acknowledging that a substantial portion of their loans to the Third World will probably never be repaid. Northern Trust added $85 million to its reserve, while Centerre set aside an additional $20 million.

National Westminster's action is expected to spur other British banks to face up to their potential Third World problems, analysts said. Banks in France, Switzerland, Germany and Japan have already adjusted their balance sheets to reflect the problems of their troubled borrowers and are not likely to declare huge new additions to their bad-debt reserves.

New York's Citicorp, the nation's largest bank, started the wave of big reserves a month ago when it said it was putting aside $3 billion in preparation for losses on its $15-billion Third World loan portfolio. As a result, the banking company expects to lose $1 billion this year.

BankAmerica Corp. reluctantly added $1 billion to its reserve, resulting in an estimated $800-million loss for the year. The deficit will mark the third consecutive losing year for the San Francisco banking firm, the nation's second-largest.

The stock market generally has reacted positively to the banks' recognition of reality on the developing world debt problem. Citicorp's shares have risen nearly 25% in the month following its announcement. BankAmerica's stock has fallen no further from its already-depressed level, which in itself is good news for the troubled company.

All but two of the nation's 10 largest banks have now announced large reserves and big losses for the second quarter. Only New York's J. P. Morgan and San Francisco's Wells Fargo & Co. have not yet joined the group.

"It was no surprise on Bankers Trust and Manufacturers," said Stephen Berman, banking analyst with County Securities in New York. "Everybody's trying to do the same thing in light of the market response to Citicorp's action. Now it's time for some real- world activities. This is all very nice, but it doesn't move us along the course."

The reserve additions are essentially accounting moves that do not lessen the banks' interest in collecting the debts or make paying them any easier for the borrowing countries. But bankers and analysts say they open the way for new solutions to the 5-year-old debt crisis, such as selling the loans at a discount in the secondary market or swapping loans for equity shares in local enterprises.

"We believe our new level of reserves appropriately addresses market concerns over developing world debt and our exposure there," said John F. McGillicuddy, Manufacturers Hanover's chairman and chief executive. "Developed world governments, the debtor nations, the multinational agencies, as well as banks, must continue to bring new thinking to the negotiating table. The recent agreements contain an increasingly varied menu of financing options," McGillicuddy said.

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