2 Major Texas Banks Plagued by Heavy Losses : Real Estate Loans Hurt MCorp, First Republic
The second-largest banking company in Texas reported an operating loss of $169.3 million for the second quarter Thursday, casting another shadow over the darkest corner of American banking.
Dallas-based MCorp said its earnings for the quarter of $46.2 million would actually have been a loss of $169.3 million without counting the $215.5 million the company netted in the sale of its data processing subsidiary. MCorp lost $58.2 million in the first quarter of 1988 and $114.9 million in the second quarter of 1987.
The report came the same day that the chairman of the Federal Deposit Insurance Corp. said second-quarter losses at the largest bank in Texas, First RepublicBank of Dallas, were worse than regulators had anticipated.
First RepublicBank, which is in the midst of a bailout by FDIC, reported a loss of $758 million in the second quarter on top of a record $1.5-billion loss in the first quarter.
L. William Seidman, FDIC chairman, said after a speech in Chicago that the second-period results were a “little worse” than the regulators expected. He blamed the poorer performance on the deterioration of real estate values in Texas.
FDIC loaned First RepublicBank $1 billion earlier this year after a run on deposits threatened the bank’s stability. The regulators are considering proposals from the bank’s new management and outside investors for new ownership.
Among the banks that have sent teams to First Republic to examine its books in preparation for a possible bid for the bank are Wells Fargo of San Francisco, New York’s Citicorp and NCNB of Charlotte, N.C.
Seidman said he did not know whether the bank’s second-quarter performance would force FDIC to ante up more assistance money to persuade someone to acquire the bank.
MCorp is the last major Texas bank to remain independent, but some analysts have questioned whether that banking company will also be forced to seek outside capital.
Like other big Texas banks, MCorp has suffered from severe problems with its real estate loans. Non-performing loans, those on which interest payments are 90 days or more past due, were $1.77 billion at the end of the second quarter. The figure represented a very large 13.73% of total loans, an increase from 11.93% at the end of the first quarter.
In an effort to raise capital, MCorp sold its profitable data processing unit, MTech, to Electronic Data Systems for $281 million in cash and securities on April 19. The deal resulted in a gain for the bank of $215.5 million.
