Is stock in Washington Bancorporation a good deal for investors?

The pros and cons of that question are being debated at length these days as investors consider whether to buy some of the 700,000 new shares being offered to the public by Washington Bancorporation, the parent of the National Bank of Washington (NBW).

The question is not easy to answer.

The profit picture at NBW has been clouded by its losses and potential losses on foreign loans. And because most of NBW's stock has been in relatively few hands for a long time, NBW has not yet developed a broad market for its stock, one that attracts lots of players.

The sale of the new shares will help broaden the market and improve liquidity, but trading in NBW shares, under the symbol WWBC, will still be relatively thin.

Moreover, this is not the best of times for financial stocks. Bank stocks have risen about 19 percent so far this year. But they have lagged behind the overall market, as represented by the Standard & Poor's 500, which is up about 30 percent.

Given all those factors, it appears that the price of NBW stock may not go very far in the short run -- and that factor may discourage investors who do not like to see their stocks sitting still while the rest of the market is rising.

But the more intriguing aspect of the NBW story is what the future holds. Bank management has told potential investors that the managers are carefully grooming their institution to be taken over by a larger financial institution in several years.

If management is successful in leading NBW into a takeover deal and, if the takeover prices are as good as they have been in the past, NBW stockholders could be bought out for at least twice the present price of the stock, which closed Friday at $17 a share.

That's a lot of "ifs," but most investors know that risk and reward never get far away from each other.

Luther H. Hodges Jr., chairman of Washington Bancorporation, made the bank's strategy clear during a recent Washington presentation. The "dog and pony show" was part of a multicity tour made by bank officials to discuss the stock offering with professional investors.

According to investors who attended the Washington meeting, Hodges made it clear that his goal was to improve the bank's financial performance to the point where it could be sold for its maximum value. He told the investors he thought it would take three years to do that.

Hodges, the sources reported, said he wanted to boost the bank's return on assets (ROA) to 0.85 percent and its return on equity (ROE) to 15 percent. Both ratios are used to measure profitability.

It's been several years since the bank's performance stood at those favorable levels.

In 1985, the bank turned in a ROA of 0.82 percent and a ROE of 14.18 percent. Both ratios slid in 1986 and went into the minus column for the first half of 1987, when the company decided to add $12 million to its allowance for losses on Latin American loans.

The result was a net loss for the bank for six months ending June 30 of $9.2 million, or $1.48 per share. In the same period in 1986, the bank made a profit of $3.4 million, or 68 cents a share.

The chances for the bank to return to its former levels of profitability depend on many things, of course, including how the bank fares with its international loans.

As of June 30, the bank had $76.7 million of loans to Latin American countries experiencing liquidity problems, of which $24.5 million was considered to be in the problem category. Because there are so many uncertainties in the field of foreign loans, it is possible the bank might be required to set aside even more money for losses, the company said in its prospectus.

Investors familiar with NBW cite several factors to be considered about the stock.

On the favorable side, the stock is priced at $17, which means it is selling at only slightly more than its $15.26 book value per share. (Book value is calculated by subtracting liabilities from assets and dividing by the number of outstanding shares.)

At $17, investors say, the stock is a bargain -- especially because previous bank mergers in the Washington area have taken place at twice book value and even higher -- although the takeover fever has subsided considerably.

NBW now has a subsidiary in the Virginia suburbs and is trying to acquire a state-chartered savings and loan in Maryland. That will make the bank a more attractive takeover candidate.

On the other hand, an investor has to be prepared to wait two or three years for the golden egg to hatch. And there are no guarantees that the bank will attain Hodges' desired levels of profitablity or that foreign loans won't again become a nasty problem.

NBW filed its offering Sept. 9. Its shares are expected to come to market soon, although bank officials have not been happy to see the price of the existing stock dropping in recent weeks. As recently as Aug. 28, the NBW shares traded at $20 each. Naturally, the higher the price of the older shares, the more money the bank will make when the new stock begins to trade.

The underwriter for the NBW issue is Keefe, Bruyette & Woods of New York, a firm known for its expertise in the banking field. It serves institutional clients.

As a result, a goodly portion of the new shares are expected to go to institutional investors -- especially to small institutions that can be expected to hold on to the stock and not worry about being able to move in and out of its position quickly.

However, Gene F. Bruyette, vice chairman of the underwriting firm, said he expects the offering to include both institutional and retail investors, with emphasis on the retail side in the Washington area.

Jewelers Inc. of Alexandria will try to raise about $20 million from current stockholders for an ambitious 1988 expansion plan.

Kay has told the Securities and Exchange Commission that it plans to issue about 1 million additional shares, with present shareholders getting the first rights to them.

Under the plan, Kay shareholders would receive a subscription right for each share of common stock they hold. For every eight rights, shareholders would be entitled to buy one of the new shares, which will be priced slightly below market value.

Kay Jewelers President Michael Lavington said that although this approach to issuing stock is not widely used in the United State these days, "We decided to use it because it was a good way to give an advantage to existing stockholders and allow them to maintain their same stake in the company."

Kay is one of the nation's largest fine jewelry retailers, operating 435 stores under the names of Kay, J.B. Robinson, Marcus & Co. and Black, Starr & Frost Ltd.

heard of conservative portfolios and speculative portfolios, but have you heard of the "Blood in the Streets" portfolio? Probably not, unless you are one of the 15,000 subscribers to Strategic Investment, a newsletter published in Washington by James Davidson and Sir William Rees-Mogg. Davidson is also chairman of the National Taxpayer's Union. Rees-Mogg is a former editor of The Times of London and is active in British corporate and cultural organizations.

Strategic Investment, now three years old, offers suggested investments in four portfolios. The "Blood in the Streets" portfolio includes investments that have been so badly beaten up that they have almost no place to but up -- if they go at all. Among past investments that did go up were Bolivian government bonds and Mexican telephone company stock.

The bizarre name for the portfolio comes from a book, "Blood in the Streets," written by Davidson and Rees-Mogg. The title was suggested by a quote from Baron Nathan Rothschild who, around the time of the Battle of Waterloo, said, "The best time to buy is when blood is running in the streets."

In their September newsletter, Davidson and Rees-Mogg notified subscribers they are forming a new mutual fund, to be called the Cross-Market Opportunity Fund, which will employ many of the strategies now used in Stratgic Investing's four portfolios. A capital appreciation fund, Cross-Market will use a variety of hedging techniques, including options, futures, etc. in hopes of making money in up markets and down markets. The fund is expected to be launched around Jan. 1. ENDQUA