Banks May Lose $1.33 Billion on Maxwell Communication Loans

Banks with loans to Maxwell Communication Corp. face losses totaling $1.33 billion--which is even more than the expected losses on loans to the Maxwell private companies, according to bankers with a close knowledge of the media group’s problems.

The potential losses are likely to be crystallized in the next few weeks, when MCC is expected to ask its banks to convert 50% of their loans to the media group into preferred shares as part of a reconstruction plan to keep the company out of receivership.

As auditors and investigators pick through the devastation of the late Robert Maxwell’s media empire, more details emerged about the disappearance from MCC of its holdings in Berlitz International, the language schools company.

The auditing firm of Coopers & Lybrand Deloitte, which has been investigating the finances of Maxwell’s privately held companies on behalf of his European bankers, believe that about 23% of MCC’s holding in Berlitz was secretly transferred by Maxwell to one of his firms--Bishopsgate Investment Management--in the spring.

These shares were later pledged to Swiss Volksbank (SVB) and New York-based Lehman Bros. as security against loans those banks made to the private companies.

SVB and Lehman are now claiming to own the Berlitz shares, because they say the Maxwell private companies defaulted on the loans. A banker said there will probably be a legal wrangle over ownership of these shares. Macmillan Inc., the New York publishing house that is owned by MCC, had plans to sell Berlitz before the discovery that the shares were missing.

Maxwell’s media group owes $2.72 billion to its banks. The biggest lender is Credit Lyonnais, the state-controlled French bank, whose exposure is estimated at $272 million. Other substantial lenders are Swiss Bank Corp. and SVB--with exposures of $100 million and $73 million, respectively.

Also involved are Barclays--with a loan estimated at $91 million--and four U.S. banks: Bank of America, Bankers Trust, Chase Manhattan and First National Bank of Chicago.

Still, the banks have been warned by MCC that it would be highly damaging to their interests to put the company into receivership.

The bulk of MCC’s debt is unsecured, so banks will rank alongside all other creditors if the company is liquidated.