MNC Financial Inc., parent firm of three of the region's largest banks and Washington's biggest financier of real estate development, said yesterday that it lost a record $173 million in the third quarter and has been forced to put its prized credit card operation up for sale to raise the money it needs to survive the local real estate downturn.

The Baltimore-based parent of Maryland National Bank, American Security Bank and Equitable Bank said the weakening real estate market increased MNC's problem loans -- on which repayment is doubtful -- above $800 million in the three months ended Sept. 30. As a result, the bank company said it has agreed to stepped-up supervision of its activities by federal banking regulators.

Newly appointed MNC Chairman Alfred Lerner said a substantial portion of MNC's problem loans had been made to fund construction and commercial development in Northern Virginia, where there is more vacant office space than in the District or in suburban Maryland.

The magnitude of the bank company's real estate problems, which were disclosed yesterday following an intensive examination by regulators, prompted the board of directors to abandon a previously announced deal to raise nearly $200 million through a stock sale to Lerner.

"My deal didn't fall apart," Lerner said. "It simply became clear that it wouldn't be enough. Why didn't we realize that before? I don't have an answer. ... Things move very quickly when you're in a situation like this. The fact is now that we need a much bigger solution."

Lerner said he hopes the sale of the company's "crown jewel," the MBNA America credit card subsidiary, will provide enough cash to put the financially ailing bank company back on its feet. MNC and its bank subsidiaries need the cash to protect the federal deposit insurance fund from losses and to operate soundly.

Banking analysts, who said they were surprised that Lerner would put the credit card subsidiary up for sale, questioned whether MNC could be profitable without it. The subsidiary, which some analysts expect to be sold for more than $1 billion, is the 14th-largest bank credit card subsidiary in the nation and has been the major contributor to MNC's earnings in recent years.

"This transforms the company," said Kyle Legg, who tracks MNC's performance for Alex. Brown & Sons Inc. in Baltimore. "I really never thought {the problems} would get to this point."

Lerner said he had no choice but to go forward with the sale. "The job we have is to get this place fixed," said Lerner. "The first way to do that is to recognize what has to be done ... put the procedures in place ... and go ahead and do it."

Lerner acknowledged at a press conference yesterday in Baltimore that news of the company's difficulties could shake depositor confidence even though deposits remain insured by the federal government up to $100,000 per customer account. He urged depositors not to withdraw their funds and to give MNC time to work out its problems.

"I think ... {the banks} can handle whatever the depositors' wishes are," Lerner said. "Every depositor has to make his own decisions. It's our job to make them feel confident. We're doing that by taking the actions that we're taking."

MNC built its business on real estate in the 1980s, bankrolling such premier developers as Dominick Antonelli, Conrad Cafritz and Oliver T. Carr, who recently resigned from MNC's board of directors. But MNC will be severely restricted in the months ahead in its ability to provide real estate developers with fresh capital.

Lerner said yesterday MNC has signed new agreements with federal banking regulators, who are now empowered to review all major decisions at the bank company.

Under agreements with the Office of the Comptroller of the Currency (OCC), Maryland National Bank and American Security Bank must increase capital, the cash cushion that bank owners must provide to protect against loan losses.

The written agreements also require prior OCC approval for payment of dividends by the banks and require management to regularly submit reports on nearly every facet of the banks' operations.

MNC has a separate agreement with the Federal Reserve Board, which also prohibited payment of dividends and appointment of senior management without prior approval. MNC also must update the Fed regularly on the bank holding company's financial condition and operations.

Lerner said the agreements, the toughest so far imposed on any bank in this area, are "not nearly as tough as they could have been." He said management still is in control of MNC and "is calling all the shots."

Unlike many bankers who have blamed the regulators for their problems, Lerner said MNC is taking full responsibility.

The regulators "didn't make a single one of these loans," he said. "We have made some mistakes. ... We have not performed the way that we should have, and the regulators have a right {to oversee us}. ... Nobody at this bank wins the award for good lending in 1989."

Lerner's frank responses to questions reflected his desire to put the bank company's problems on the table so that MNC can move forward as soon as possible. Having only recently become chairman, Lerner was not directly responsible for the problem loans.

It is unclear what action regulators will take if the banks fail to meet the prescribed capital levels or if MNC violates the agreements in some other way.

With 21 percent of its $16.1 billion loan portfolio in commercial real estate, MNC ranked No. 1 in real estate lending among the nation's banks in the second quarter, according to the New York brokerage Bear, Stearns & Co.

But the tremendous concentration of real estate loans left the company highly exposed to the jump in office building vacancy rates and the plummeting commercial real estate values.

In the third quarter, MNC lost $173.4 million, compared with a profit of $68.8 million (80 cents a share) in the year-earlier period. For the first nine months of 1990, MNC said it lost $241.9 million, compared with a profit of $192.9 million for the same period in 1989. Lerner said he is pessimistic about the market and expects losses and problem real estate loans to continue in the fourth quarter.

The bank company's nonperforming loans -- those which are in default or are no longer paying interest -- increased 40 percent during the third quarter, to $844 million from $602 million as of June 30. Of those, $450 million are commercial real estate related.

Total nonperforming assets, which includes real estate that the company now owns because of foreclosures and other problem debts totaled $1.14 billion as of Sept. 30, up 52 percent from $757 million at the end of the second quarter.

The mounting loan losses forced MNC to add $350 million to its cash reserves, bringing total reserves to $791 million -- nearly dollar-for-dollar protection against loan losses.

Lerner said the reserve for loan losses is more than $100 million higher than the regulators recommended and reflects a "prudent, honest" approach to the problems.

If Lerner succeeds in getting MNC's problems behind him, he said he hopes to return to the task of building a dominant banking franchise in the area that will focus on "old-fashioned, bread and butter" banking.

Lerner said that even though his plan to acquire preferred stock has been dropped, he may purchase shares in the open market to raise his stake in MNC beyond 8.9 percent. He is currently awaiting federal government approval to increase his holdings beyond 25 percent.

On news of the company's problems, MNC stock dropped 75 cents yesterday in trading on the New York Stock Exchange, to close at $4.12 1/2.

MNC's board of directors also decided last week to discontinue the bank company's commercial paper sweep program, which nightly swept depositors' money into its short-term commercial paper notes, which are a form of debt.

Lerner said "the regulators were not ecstatic about our being in that business," although he said they did not force MNC to terminate it.