Rebounding from market-related troubles, two big New York banking companies posted fourth-quarter earnings Tuesday in excess of Wall Street's expectations.
Chase Manhattan Corp. said its profits soared 31.6%, to $1.15 billion in the period, thanks to double-digit gains in all three of its major businesses. Earnings per share of $1.31, up smartly from the third quarter, trounced analysts' forecasts by 12 cents, though Chase had said in December that it would post record results.
J.P. Morgan & Co. posted per-share earnings of 42 cents, 4 cents higher than consensus estimates. Excluding a $143 million pretax restructuring charge, Morgan beat Wall Street's expectations by 48 cents.
Morgan reported a 67% decline in fourth-quarter profits, to $89 million, citing ongoing weakness in emerging markets and proprietary trading. Still, the results were better than Morgan had forecast in mid-December, thanks largely to a market rally late in the month.
"Our priority is to stay focused," said Douglas A. Warner 3d, Morgan's chairman and chief executive officer, in a conference call with analysts.
"With reasonably cooperative markets, we should be able to operate within our target range for (return on equity) of 15% to 20% this year," he said. Morgan's ROE for all of 1998 was 8.60%
Analysts said Tuesday's reports illustrated the difference between large, diversified banks like Chase and smaller, more focused institutions like Morgan.
"Chase just has a lot more businesses" than Morgan, said Steven Eisman, an analyst at CIBC Oppenheimer & Co. Morgan is "narrower in focus, with a smaller client list and a greater dependency on proprietary activities."
Meanwhile, Bank of New York Co.-which has a mix of businesses that shields it from market fluctuations-said its fourth-quarter profits rose 5%, to $313 million. The results amounted to 40 cents per share, in line with analysts' estimates.
Chase
At the nation's third-largest banking company, profits for the year grew 2%, to $3.78 billion, or $4.24 per share. Chase took a $510 million pretax restructuring charge in the first quarter of 1998.
In the fourth quarter, Chase posted big revenue gains in each of its three main business units. Corporate banking grew 37% to $2.49 billion; national consumer services jumped 15%, to $2.2 billion; and global processing services gained 17%, to $724 million.
"Chase is delivering the promised results," said David Berry, director of research at Keefe, Bruyette & Woods Inc. "The fourth quarter was a franchise-enhancing event."
Fee revenues in the period jumped 46%, to $2.9 billion, and showed gains in a wide variety of businesses.
Investment banking fees rose 3%, to $381 million; trust and investment management fees rose 22%, to $414 million; credit card revenues grew 33%, to $428 million. Trading revenues of $522 million compared to a loss last year of $78 million.
Morgan
Profits of $963 million for the full year were 34% lower than 1997. Mr. Warner acknowledged during a conference call with analysts that poor market conditions dampened earnings.
"Results matter, and we know it," Mr. Warner said. "We are obviously not satisfied with the year's results."
Last year, the nation's fifth-largest banking company pledged it would curtail the rate of expense growth to single digits, and executives told analysts Tuesday that they had accomplished that. For the year, expenses, excluding one-time charges for restructuring, gained 2%.
Morgan "has been talking about costs for a long time and has perpetually failed to deliver," Mr. Berry said. "I am encouraged this time."
Morgan executives said they hoped to reduce expenses by another $400 million this year.
The company's fourth-quarter restructuring charge included $101 million for severance for 800 employees and $42 million of real estate costs from the consolidation of European locations.
Noninterest income rose 3%, to $1.27 billion, during the quarter. Revenues from client-focused activities grew 10%, to $1.46 billion.
Fees from mergers and acquisition advisory and underwriting services soared 29%, to $349 million, a record.
Declines came in activities for the bank's own account. Proprietary investing and trading slipped 28.5%, to $168 million. Equity investments saw a 71% drop in revenues, to $46 million.
Bank of New York
Net income for the year rose 8%, to a record $1.19 billion, or $1.53 per share.
Noninterest income for the fourth-quarter was $597 million, down 13%. The year-ago period included a $177 million gain on the sale of the bank's credit card portfolio to Chase.
Securities processing fees, the bank's largest contributor to fee income, jumped 29%, to $274 million, as the business benefited from the higher volumes associated with market volatility.
Trust and investment fees rose 14.8%, to $54 million. Foreign exchange and other trading brought revenues of $51 million, a gain of 30% +++
J.P. Morgan & Co. New York Dollar amounts in millions (except per share) Fourth Quarter 4Q98 4Q97 Net income $89.0 $271.0 Per share 0.42 1.33 ROA 0.12% 0.40% ROE 3.10% 9.70% Net interest margin 0.67% 0.89% Net interest income 323.0 455.0 Noninterest income 1,266.0 1,225.0 Noninterest expense 1,391.0 1,308.0 Loss provision 25.0 0.0 Net chargeoffs 19.0 9.0 Year to Date 1998 1997 Net income $963.0 $1,465.0 Per share 4.71 7.17 ROA 0.34% 0.58% ROE 8.60% 13.40% Net interest margin 0.66% 0.98% Net interest income 1,281.0 1,872.0 Noninterest income 5,784.0 5,348.0 Noninterest expense 5,538.0 5,066.0 Loss provision 50.0 0.0 Net chargeoffs 136.0 0.0 Balance Sheet 12/31/98 12/31/97 Assets $261,067.0 $262,159.0 Deposits 55,028.0 58,879.0 Loans 25,025.0 31,032.0 Reserve/nonp. loans 385.20% 483.20% Nonperf. loans/loans 0.48% 0.36% Nonperf. assets/assets 0.25% 0.25% Nonperf. assets/loans + OREO NA NA Leverage cap. ratio 3.90% 4.40% Tier 1 cap. ratio 8.00% 8.00% Tier 1+2 cap. ratio 11.60% 11.90%
Bank of New York New York Dollar amounts in millions (except per share) Fourth Quarter 4Q98 4Q97 Net income $313.0 $298.0 Per share 0.40 0.37 ROA 1.86% 1.95% ROE 23.88% 23.73% Net interest margin 3.20% 3.26% Net interest income 432.0 400.0 Noninterest income 597.0 689.0 Noninterest expense 507.0 491.0 Loss provision 5.0 100.0 Net chargeoffs 7.0 44.0 Year to Date 1998 1997 Net income $1,192.0 $1,104.0 Per share 1.53 1.36 ROA 1.89% 1.86% ROE 24.25% 22.13% Net interest margin 3.24% 3.89% Net interest income 1,651.0 1,855.0 Noninterest income 2,283.0 2,137.0 Noninterest expense 1,928.0 1,874.0 Loss provision 20.0 280.0 Net chargeoffs 29.0 354.0 Balance Sheet 12/31/98 12/31/97 Assets $63,579.0 $59,961.0 Deposits 44,672.0 41,357.0 Loans 38,426.0 35,127.0 Reserve/nonp. loans 355.50% 331.40% Nonperf. loans/loans 0.50% 0.56% Nonperf. assets/assets 0.50% 0.60% Nonperf. assets/loans + OREO 0.51% 0.60% Leverage cap. ratio 7.46% 7.59% Tier 1 cap. ratio 7.88% 7.92% Tier 1+2 cap. ratio 11.90% 11.97%
Chase Manhattan Corp. New York Dollar amounts in millions (except per share) Fourth Quarter 4Q98 4Q97 Net income $1,146.0 $874.0 Per share 1.31 0.97 ROA 1.20% 0.92% ROE 20.10% 17.00% Net interest margin 3.16% 3.06% Net interest income 2,160.0 2,110.0 Noninterest income 2,900.0 1,980.0 Noninterest expense 2,873.0 2,496.0 Loss provision 411.0 205.0 Net chargeoffs 417.0 205.0 Year to Date 1998 1997 Net income $3,782.0 $3,708.0 Per share 4.24 4.01 ROA 1.01% 1.04% ROE 17.30% 18.70% Net interest margin 2.89% 2.89% Net interest income 8,566.0 8,253.0 Noninterest income 10,090.0 8,555.0 Noninterest expense 11,383.0 10,094.0 Loss provision 1,343.0 804.0 Net chargeoffs 1,554.0 804.0 Balance Sheet 12/31/98 12/31/97 Assets $365,875.0 $365,521.0 Deposits 212,437.0 193,688.0 Loans 172,754.0 168,454.0 Reserve/nonp. loans NA NA Nonperf. loans/loans NA NA Nonperf. assets/assets 0.44% 0.28%
Nonperf. assets/loans + OREO NA NA Leverage cap. ratio 6.40%* 6.00% Tier 1 cap. ratio 8.30%* 7.90% Tier 1+2 cap. ratio 12.00%* 11.60%
* Estimated ===
