Clarion-Ledger from Jackson, Mississippi • Page 19

THE CLARION-LEDGER JACKSON, MISSISSIPPI FRIDAY, JULY 3, 1992 Me banks Fvi DAN -T DORFMAN Gannett News Service i I jj III drop DoacD, Pt P5 TV OP savings rates After the Federal Reserve dropped the discount, state institutions cut their prime. By Lee Ragland and Sharon Stallworth Clarion-Ledger Stan Writer What's the bottom line on Thursday's drop in key in terest rates? Borrowers will pay less. Savers will earn less. "Wo have them on both sides, and we have savers who ainincr gg mnrh US hoiTOWerS who are haPDV that the rates are down," said Pete Boone, chief executive officer at Grenada Sunburst bank, the state tnira larg til jsa iLii est financial institution. Sunburst joined Deposit Guaranty National Bank, Trustmark National Bank and Bank of Mississippi in dropping their prime rate from 6V2 percent to 6 percent.

Newly married BankAmerica may see sparks fly It's been more than two months since BankAmerica and Security Pacific tied the knot in the banking's biggest marriage. If you joined them on their wedding day, ugh! The stock is down in a dull market. Still, three pros say sparks fueled by earnings excitement are about to fly for the newlyweds. Their outlook: Stock gains of up to 70 percent in 12 months, over 100 percent in three years. The new couple, the nation's second largest banker behind Citicorp, has kept BankAmeri-ca's name.

Its shares, listed on the New York Stock Exchange, rose more than 30 percent between year-end and its April 22 wedding-day close of $47. Today, with investor ardor cooled, the stock is about $44. Of course, no marriage is stress-free. Management has said integrating the two banks will take up to a year. Likewise, restructuring charges could take a bite out of '92 earnings.

"But don't worry about any near-term noise; look at longer-term earnings power," says Donald Crowley of Keefe, Bruyette and Woods, a brokerage specializing in bank stocks. Crowley, once BankAmerica's stock research chief, sees operating earnings doubling in '96 from his estimated $4.60 a share in '92. He also sees $6.50 a share in '93, $8-plus in '94. Our other analysts and their earnings estimates: James Rosenberg of Shearson Lehman Brothers: $4.30 a share in '92, $5.60 in '93, $7.10 in '94. Lawrence Vitale of Kemper Securities Group: $4.75 a share in '92, $6 in '93.

He has no '94 estimate yet. Fed cuts discount rate Feb. 24, 1989 4-year peak 7 Rick GuyThe Clarion-Ledger Construction in Jackson, work on a house in The Gardens of Crossgates subdivision in Brandon Thursday. Questions and answers From Staff and Wire Report Qi Many banks around the country lowered their prime rate almost immediately after the Federal Reserve cut the discount rate. What will that mean for consumers? Aa If you're in the market for a house, it may mean you'll see a drop in mortgage rates.

The interest on home equity loans, adjustable rate mortgages and credit cards that are tied to the prime rate will go down. Qi I've got money in a bank savings account. Will the interest I earn on that account be affected? 1 nese rut.es are getting unbe-lievably low. It will affect almost everyone," Boone said. The Federal Reserve started a domino effect by dropping the discount rate.

Banks around the nation followed by cutting the prime rate from 6.5 percent to 6 percent. The flip side is that depositors will see money interest on their ac-counts slip. Trustmark Na- The interest -rate drops are expected to boost housing. Here, Mike Josey (left) and Calvin Monk, of A.J. Garner chairman of Hattiesburg-based Magnolia Federal Bank for Savings, the state largest savings and loan.

"We usually change ours on Monday unless there is a drastic move. This is a drastic move." The rate cuts are being made by the government in an attempt to spur the economy. "Whether it does or not, we'll have to wait and see," said Lewis Prest, general manager at Blackwell Chevrolet and Imports in Jackson. "Business is picking up here. It's not going full-tilt by any stretch, but it's improving from three to six months ago." Most traders in big-ticket items, such as cars and houses, were optimistic that the changes would bring buyers back to the marketplace, but said other factors had more bearing.

Low interest rates won't help so long as credit restrictions and bank policies still impede loans, said Jackson real estate agent Lavaree Jones. "The interest rate has not really had that much impact," said Jones, whose business concentrates in northwest and southwest Jackson. "It makes people busy because real estate agents spend a lot of gas showing people properties, but there's not much impact on them actually buying." Said Realtor Kelly Dabbs, "Any time the rates drop it is good. More people can afford houses." W. 11 Dec.

20, 1991 if IiiiiiiiaiiiiiiMiii 1- liHtJ July 2,1992 3J Aa You'll probably see the interest rate on savings 87 '88 '89 "90 Source: Federal Reserve accounts and certificates of deposit drop. Qi Who gets hurt by lower interest rates? Gannett News Service Hnr.nl Rank bv A People who live off the interest on savings ac counts and certificates of deposit especially the elder Thursday afternoon had changed the amounts posted in its lobby. The one-year certificate of deposit fell to 3.75 percent from 4 percent while the 2V2-year CD fell from 53s percent to 4 percent. Other institutions will do the same. "We will follow probably (today)," said Bob Duncan, ly suffer the most.

The yield on a one-year certificate of deposit now stands at about 4.03 percent, less than half the 9.51 percent yield it fetched in April 1989. Jackson retailer unfazed by Fed's action worked in several Jackson-area men's stores before opening his store two years ago. He didn't get a bank loan By Mac Gordon Clarion-Ledger Business Writer fa: then, either. "I went home to Syria for a vacation supposed to last about three weeks and it lasted two months. When 1 came back my job was gone, so I found an investor and started this business.

Jackson general contractor Homer L. Tillman has been in business for almost 40 years and has depended BankAmerica's key growth ingredient: Huge cost savings. Management expects to save $240 million in the first year of the merger, $720 million in the second and $1.2 billion a year starting in the third year. Crowley feels these numbers may even be conservative. "BankAmerica isn't sticking its chin out further than it has to," he says.

He thinks merger-related savings could crack the $1 billion mark by early '94 and eventually run as much as $1.3 billion to $1.4 billion. Also exciting our pros: Big market share. BankAmerica is No. 1 in California, Washington and Nevada, based on retail deposits. It's No.

2 in Arizona and New Mexico. Low price-earnings multiple. BankAmer-' ica trades at 6.8 times Crowley's '93 earnings es-', timate, vs. 9 to 1 1 times for many quality banks. Appealing return on equity.

Vitale expects it'll run 14.5 percent in '92 and 17 percent in '93. In contrast, he sees an industry return on equi-' ty of just 9 to 10 percent over this period. Juicy dividend growth. Crowley sees it compounding at 17 to 20 percent a year over the next four to five years. Rosenberg expects BankAmerica to hit $75 in 12 months.

Vitale sees $60 in 12 months, $80 $90 in three years. Crowley says the stock could wear a $90 price tag by the mid '90s. However, Prudential Securities' analyst George Salem rates the stock a sale and says it could fall to $35 to $37. His reason: "Commer-cial real estate could bring nasty surprises for investors who have focused on the trees and are ignoring the California forest." Salem says California's economy is in a lengthy decline, not a recession that'll end in '92 on bank financing for much of that time. But things aren't like they used to be, he said.

"I can remember the time when you'd call the bank for a small amount like $5,000 and then just go down and sien the note. Now you've got to fill out all those forms Mohammed Jamila considers himself amongthe "last people in the world a bank would consider for a business loan." So Thursday's action by the Federal Reserve Board lowering the discount rate was supposed to get much of his attention? "Not really," said Jamila, owner of the Phoenix Outlet at 953 Bailey a men's clothier. "Within the last few years so many small retailers have filed bankruptcies the banks are scared to death of us. "We stay alive by cutting a little here and a little there and being as efficient as we can. Minimizing expenses is our way of making it about our only way." Jamila believes the Fed's action could help stimulate business, but he has already seen signs of an improving economy.

"It's begun to pick up some. The recession seems to be coming out," he said. "The wholesalers are showing a little more merchandise than a few years ago. "I wouldn't say that people have more money to spend than a year ago, but they're not holding on to it like they were. A year ago they were tighter with it." Jamila, whose store has six full-time employees, and you better have dollar-for-dollar collateral," said Tillman, who builds homes and commercial structures.

"But this is good news because I have to borrow to keep going. Small businesses that don't meet strict lending regu lations won't be helped much by the drop in rates, said a Jackson banking executive. "The reduced amount of interest expense would be a positive factor, especially those thinking of expanding their business," said Jack Garner, president of Sunburst Michele StapletonThe Clarion-Ledger Phoenix Outlet owner Mohammed Jamila says banks are "scared to death" of small retailers. Bank in Jackson. Ex-state auditor expected to be named director of FmHA or 93.

He troubled by weakness in jods, retail sales, personal income and housing. So he says many West Coast properties could fall up to 50 percent from original appraisals. Citing some $22.5 billion in commercial real estate loans, a big portion from Security Pacific, he says losses could largely wipe out merger cost savings. Vitale views Security Pacific's risky loans as "a thorn in its side." But he says "BankAmerica fixed its own shop in '85 and '86 and I'm confident they'll do it again with Security Pacific." Likewise, he says BankAmerica's loan loss reserves equal $5.2 billion or 3.6 percent of total loans, well above the average 2.1 percent for the 150 banks his firm tracks. So our bulls' wrapup: Marriage has its rocky periods.

In BankAmerica's case, look beyond them for some investment bliss. Dan Dorf man's column runs every Friday. A recent report showed that about 2,200 of Farmers Home borrowers in the state were delinquent on their loans. Johnson estimated about 10 percent will face foreclosure eventually. "For those who cannot pull themselves out of this, we will have to proceed toward protecting the taxpayers' interest.

There is not any one equation we can apply to all of them every situation is different." Farmers Home employs 530 people in Mississippi, including about 100 in the Jackson office. Johnson's salary will be established once his confirmation procedure is completed by the USDA, said John Perkins, spokesman for Cochran. farming operations, rural housing and water associations. Currently, 58,000 homes in the state are being financed by the agency. Almost 500,000 Mississippians get their water from systems financed by the FmHA.

He said a top priority will be ensuring "affordable credit is available to responsible borrowers. We've had some programs in the past that were not economically sound. "We're committed to funding for farmers not able to get credit elsewhere, but we want to graduate them into private-sector lending. Over the years we've taken on some farmers who never left. We feel that was never the intent of Farmers Home." Fordice in the Republican primary last year, has worked under Huff in the state FmHA office since January.

"In the past when we had a state director leave it would go for months and sometimes years before another director came in, and there was no continuity of management," Johnson said. "Sens. Cochran and (Trent) Lott both felt it was important to get some continuity here and Jim Huffs management style is very similar to mine." As director of the state Fanner's Home Administration Johnson would manage a loan portfolio of about $2.2 billion and 65,000 borrowers. The agency lends out about $250 million annually for private Pete Johnson would manage a $2.2 billion loan portfolio for farmers and rural housing. By Mac Gordon Clarion-Ledger Business Writer Former State Auditor Pete Johnson is expected to be confirmed soon as director of the Farmers Home Administration in Mississippi.

U.S. Sen. Thad Cochran said that Johnson, 44, would replace James Huff who was sworn in this week as the administrator of the U.S. Department of Agriculture's Rural Electrification Administration. Johnson, who was beaten by Gov.

Kirk KEY MONEY RATES MONEY MARKETS I REGIONAL QUOTATIONS! HIS "7f DOWN I 3330.29 Thurs- Prior Year day day ago Prime rate 6.50 9.00 Discount rate 3.00 3.50 6.00 Federal funds 3.37 3.89 5.77 3.22 3.53 5.56 6- mo.T-bills 3.33 3.61 5.68 7- yr.T-notes 6.48 6.66 8.12 7.62 7.74 8.41 Muni, bonds 6.41 6.45 7.18 5 3 12 15 25 8 16 29 28 4 10 8 21 5 25 10 13 11 35 26 Eastover First Miss Gold Freds Grenada Sun Hancock Hold Inter Cable KLLM LDOS MagnaBanc Melamine MidSouth Mtel Morrisons Parkway Peoples Hold Piccadilly Sanderson SteinMart Trustmark Yellow Freight $22.10 a barrel Service Mer 10 Shoney 20 Southern Co 35 Stone Cont 24 Time Warner 113 1 Union Planter 19 WalMart 54 Weyerhaeuser 34 AMEX Eastgroup 12 Garan 64 OTC Amer Public Life 90 Banc of Miss 30 Brunos 13 Callon 1 Chromcraft 10 Congress St 1 Deposit Guar 43 DixieNat 1 1 1 The closing price and change from the sociated Press). NYSE Price Change American Cyan 56 Armstrong 30 Baxter 37 BellSouth 49 Birm Steel 25 Borden 30 Chevron 66 Dillards 37)4 DuPont 50 EmersonEI 48 Entergy 2914 FedEx 46 First Miss 11 Gannett 45 lifelMMH ttingn I General Corp 14 General Motor 4114 1 Ga Pacific 60K 2 Hancock Fab 11 Hercules 52 1 Hillenbrand 37 InterPaper 68 1 Kellwood 27 1 Kroger 15 LNH 81 -1 LaZBoy 24 Litton 45 La Pacifies 44 Perkins 20 SaraLee 51 Schlumberger 64 14 Salomon Bros, estimates for Treasury's bellwether securities. Subject to daily revision because of some markets' post-close changes. 1 DOWN 124.40 yen 1 3 $2.20 ll $346.50.