Demonstrating its prowess at investment banking, J.P. Morgan & Co. reported a stunning 72% jump in first-quarter earnings, to $439 million.
"Morgan blew the roof off," said David Berry, a banking analyst with Keefe, Bruyette & Woods Inc.
The bulk of Morgan's geyser-like gain came from trading income and advisory fees. Trading revenues more than doubled to $758 million.
Separately, Bank of New York Co. reported a 14% rise in first-quarter net income, to a record $243 million, while merger-related restructuring charges depressed results at First Union Corp. The Charlotte, N.C.-based banking company earned $239 million, down 29%.
Minneapolis-based First Bank System Inc., citing cost-cutting and credit card growth, reported a 32% jump in profits, to $177 million.
Morgan's impressive showing failed to help its share price, which suffered a $2 decline, closing at $77.
Analysts said the drop in price may have been due to market rumors earlier this week that results would be strong.
"My guess is that it's a case of buy on rumor, sell on fact," said Mr. Soifer.
Morgan's strong performance followed several years of effort by the company to transform itself from a commercial bank to an investment bank.
"The amount of credit- related fees is piddling," said Raphael Soifer, of Brown Brothers Harriman.
Nearly half of Morgan's $1.7 billion in revenues came from trading income, which includes fees for arranging swap deals for clients. Another major source of income was investment banking, including underwriting and advisory fees - up 76%, to $201 million. Investment management fees climbed 21%, to $157 million.
The strong earnings report from Bank of New York ended several weeks of uncertainty over how badly the bank might be hit by rising credit card delinquencies and a shrinking net interest margin.
Much of the improvement came from a 62% rise in revenues from securities processing fees, to $159 million. Bank of New York has been steadily expanding in securities processing through acquisitions, including this week's purchase of Wachovia Corp.'s bond trustee business. However, analysts noted that 14% of the added securities processing revenues came from existing operations.
Despite the downturn at First Union, analysts hailed net interest and capital management growth at the bank as signs it was improving revenues at the former First Fidelity Bancorp, which it acquired late last year.
On an operating basis, excluding a $181 million after-tax restructuring charge, earnings per share of $1.50 slightly exceeded Wall Street consensus estimates of $1.46.
"The good news is that top line revenue growth was quite strong," said analyst Nancy Bush of Brown Brothers Harriman.
Since the first quarter constituted the first true operating quarter for the combined First Union and First Fidelity, analysts said consecutive quarter comparisons provided the best picture of performance.
Net interest income gained 4% from the fourth quarter to $1.2 billion, driven by a 6% annualized loan growth, though that was down from last year's 16% pace. First Union's margin held steady at 4.19%, down only one basis point from the December quarter.
Fee income fell by 6% during the period, to $511 million, due to lower trading profits and merchant processing fees, related to divestiture of the processing unit. But First Union said income from its capital management group, which includes brokerage and mutual funds, improved by $7 million to $114 million.
Results at First Bank System were helped by two one-time gains: a $125 million partial payment from Wells Fargo & Co. for the Minneapolis bank's failed merger with First Interstate Bancorp, and a $46 million gain from the sale of its mortgage business. Those gains were offset by nonrecurring charges of $127 million, including $31 million in expenses related to the first-quarter acquisition of Firstier of Omaha and $39 million spent to downsize the company's branch network.
Without the nonrecurring items, analysts agreed First Bank had a solid quarter, reporting operating income of $160 million, a 19.7% year-over-year gain.
Buoyed by fee businesses and helped by First Bank's persistent cost- cutting, the one-time gains simply strengthened an already strong bank, said Dean Witter analyst Anthony Davis.
"I see continued momentum in fee income, and they're using nonrecurring sources to continue to eliminate expenses in core operations," Mr. Davis said.
First Bank's earnings per share, excluding the nonrecurring items, matched the consensus estimate of $1.14.
James R. Kraus, Kenneth Cline, and Brett Chase contributed to this article. +++
J.P. Morgan & Co., Inc. New York Dollar amounts in millions (except per share) First Quarter 1Q96 1Q95 Net income $439.0 $255.0 Per share 2.13 1.27 ROA 0.86% 0.59% ROE 17.20% 11.10% Net interest margin 1.03% 1.59% Net interest income 418.0 529.0 Noninterest income 1,344.0 888.0 Noninterest expense 1,085.0 1,002.0 Loss provision NA NA Net chargeoffs (13.0) 1.0 Balance Sheet 3/31/96 3/31/95 Assets $204,747.0 $167,077.0 Deposits 50,204.0 46,824.0 Loans 28,645.0 24,434.0 Reserve/nonp. loans 716.0% 524.1% Nonperf. loans/loans 0.5% 0.9% Nonperf. assets/assets 0.08% 0.13% Nonperf. assets/loans
+ OREO NA NA Leverage cap. ratio 6.2% 5.9% Tier 1 cap. ratio 8.20% 8.90% Tier 1+2 cap. ratio 12.10% 13.20%
First Union Corp. Charlotte Dollar amounts in millions (except per share) First Quarter 1Q96 1Q95 Net income $239.0 $337.6 Per share 0.85 1.19 ROA 0.75% 1.27% ROE 10.76% 16.52% Net interest margin 4.19% 4.65% Net interest income 1,236.8 1,156.1 Noninterest income 511.1 403.8 Noninterest expense 1,011.4 956.5 Loss provision 70.0 42.5 Net chargeoffs 148.1 70.8 Balance Sheet 3/31/96 3/31/95 Assets $130,581.0 $113,253.0 Deposits 90,518.0 84,747.0 Loans 88,554.0 78,310.0 Reserve/nonp. loans 197% 243% Nonperf. loans/loans 0.82% 0.81% Nonperf. assets/assets 0.64% 0.77% Nonperf. assets/loans + OREO 0.93% 1.09% Leverage cap. ratio 5.62% 6.18% Tier 1 cap. ratio 7.04% 7.89% Tier 1+2 cap. ratio 11.96% 12.38%
Bank of New York Corp. New York Dollar amounts in millions (except per share) First Quarter 1Q96 1Q95 Net income $243.0 $213.0 Per share 1.16 1.12 ROA 1.79% 1.65% ROE 18.86% 19.98% Net interest margin 4.46% 4.49% Net interest income 509.0 491.0 Noninterest income 420.0 319.0 Noninterest expense 444.0 416.0 Loss provision 90.0 50.0 Net chargeoffs 104.0 85.0 Balance Sheet 3/31/96 3/31/95 Assets $53,434.0 $52,280.0 Deposits 36,038.0 34,904.0 Loans 38,743.0 34,237.0 Reserve/nonp. loans 322.4% 335.5% Nonperf. loans/loans 0.60% 0.80% Nonperf. assets/assets 0.70% 1.00% Nonperf. assets/loans +
OREO 0.70% 1.00% Leverage cap. ratio 7.94% 8.06% Tier 1 cap. ratio 7.85% 8.56% Tier 1+2 cap. ratio 12.63% 13.31% ===
