BANKING: Abboud Ascends

Bob Abboud well remembers stories about the day more than 40 years ago when his father, the son of a Lebanese farmer, was denied a loan by a Boston banker. As a result, the family's heating and ventilating business went bankrupt, and Alfred Abboud was forced into teaching to pay off $5,000 owed to creditors. The incident, says A. Robert Abboud, taught him that one of the worst things a banker could do was to turn down a borrower of good character.

Abboud now has the opportunity to apply such wisdom on a grand scale. Last week, after a superachieving career in U.S. banking, Abboud, 46, took over as chairman and chief executive of First Chicago Corp., parent of the First National Bank of Chicago, the nation's ninth largest bank (assets: $18.2 billion). If confronted today by a borrower in the same situation as his father, Abboud would make the loan that the Boston banker turned down. Abboud feels that banks have forgotten character and loaned money to "too many high rollers."

Whatever the reason, banks will write off a record volume of bad loans this year—perhaps more than $3 billion. First Chicago has had its share of trouble. Its reserves to cover bad loans swelled from $12.8 million in last year's third quarter to $27 million in the same period this year; this year's nine-month total of $80 million slightly exceeded reserves for all of 1974. It indicates that the bank expects a rise in bad-loan losses, and of course, money put into reserves to cover bad loans has to be subtracted from profits. Earnings for the first nine months of this year were slightly ahead of 1974, but during the third quarter they dropped 13.5%, to $22.6 million.

Among bankers, First Chicago had a reputation for overextending itself on loan commitments. But the bank's profitable international business helped offset earnings losses from bad loans. What is more, Abboud adds, those losses were also restrained by First Chicago's policy, begun more than a year ago, of limiting loan commitments and looking for "highest quality at the greatest return." For First Chicago and banks generally, such conservative lending policies will prevail for some time as a hangover from the recession. But Abboud feels the loan-loss picture is at its darkest now, and should brighten as business profits and personal income move up with the recovery.