Growth in emerging international markets, expense controls, and several one-time gains fueled a 97% increase in Citicorp's second-quarter profits, to a record $877 million.
Excluding the special items, the net was in line with expectations, and Citicorp's stock price declined, along with that of other major banking companies. (See the back page.)
Chemical Banking Corp. reported second-quarter profits of $357 million, down 6% from $381 million a year earlier.
Chemical's earnings, at $1.28 per share, were better than expected. It had higher net interest income, tighter expense controls, and a decline in loan-loss provisions.
But one analyst said this quarter's earnings have raised questions about the long-term growth potential for many of the money-center banks. (See additional articles on pages 4 and 5.)
Money-Centers Seen Slipping
"Unlike the regionals, which are coming in better than expected, most of the money-centers are coming in no better and in some cases below expectations," said Raphael Soifer, banking analyst at Brown Brothers Harriman. "Credit card revenue is under pressure, so is revenue from mortgage banking, and trading is still weak.'"
Trading revenue at Citi was $159 million, up from $71 million in the first quarter, but down 72% from revenue of $572 million reported in the second quarter of 1993.
"Overall, this was a good quarter" for Citicorp, said Ronald I. Mandle, banking analyst at Sanford C. Bernstein. "The thing that was most disappointing was that trading is still not up to a good, sustainable level."
Citicorp's profits translated to $1.64 per share, compared with 82 cents in the year-earlier quarter.
The bank took a deferred tax benefit of $150 million, which added 29 cents per share. Citi also took a pretax gain of $117 million in net asset gains, which after tax added $74 million to earnings, or 14 cents per share.
Growth in Emerging Economies
Citi's Global Consumer business earned $411 million in the second quarter, up 39% from the $296 million earned in the second quarter of 1993.
Global Consumer revenues in the second quarter were $2.7 bitlion, up 3% from the comparable quarter last year, with revenues in the emerging economies growing 18%. Revenues in North America, Europe, and Japan declined slightly, largely because of competitive pricing in the U.S. credit card business, Citicorp said.
Operating expenses rose 2%, while credit costs declined by $123 million from the year-ago quarter, reflecting improvement in the U.S. credit card portfolio.
Global Finance reported net income of $285 million in the second quarter, down 35% from the $440 million reported in the second quarter of 1993. The main reason for the decline was trading revenues.
"The fundamentals are there," said Robert Albertson, banking analyst at Goldman, Sachs & Co. "Expenses are tight, revenues are being juiced by the emerging market business, credit cards are adding revenue despite price pressure."
Chemical's trading revenue was $203 million, up from $185 million in the first quarter of 1994, but down 32% from its record revenues in the second quarter of 1993 of $298 million.
Conservative Trading
Mr. Soifer said that Chemical may have benefited from a turn toward conservative trading practices. "My suspicion is that client activity is strong for plain vanilla products, weak in the exotic derivatives," Mr. Soifer said. "Chemical is a specialist in plain vanilla."
Analysts said Chemical was making progress holding the line on expenses. Noninterest expense was down slightly, to $1.281 billion compared with $1.312 billion a year ago. Expenses included additional costs of $47 million associated with the acquisition of Ameritrust, and operating costs connected with the Shell MasterCard.
