Ambiguity Seen In Results for The 4th Quarter

Despite an improvement in credit quality and expense control at many banks, few analysts are predicting strong fourth-quarter earnings for the industry.

Yearend reports will bring a mishmash of results that offer few indications of whether banks have turned the corner in their battle against recession, weak loan demand, and inept past credit decisions, analysts predicted.

On the positive side, net interest margins at many banks will look good for the second straight quarter because of declining interest rates. Expenses should be down as banks benefit from cost-control programs imposed this year.

And the growth of non-performing real estate assets may show clear signs of leveling off in many parts of the country.

However, those trends are likely to be negated at many bank companies by the "fourth-quarter syndrome": the tendency to "trash" the last three months of the year by taking big chargeoffs, reserves, and other nonrecurring hits to earnings in an attempt to start the new year relatively clean.

Big Mergers' Effect

The disposition to clean up may be even stronger this year as many banks prepare for big in-market mergers expected to close early next year. Many of the partners in those deals are looking to beef up their reserves and take big writeoffs in preparation for starting new lives together with clean balance sheets.

Moreover, loan growth will remain stagnant, and some non-performing assets will grow.

"It'll be tough to interpret," said Brent Erensel, an analyst at Mabon Securities Inc., anticipating his early January work.

Clearly, pockets of undisputed decline will be evident.

Wells' Bombshell

That was made clear when Wells Fargo & Co. forecast Thursday that it will make a loan-loss provision of about $700 million in the quarter, leading to a loss of up to $239 million.

Other banks in California also are expected to be hit hard. Los Angeles' two giants, First Interstate Bancorp and Security Pacific Corp., will report losses of 75 cents and 34 cents per share, respectively, according to a survey of analysts' estimates compiled by Zacks Investments Research, Chicago.

Even BankAmerica Corp., the nation's second-largest banking company and the strongest of the West Coast giants, may see a 25% rise in nonperforming assets, according to Judah Kraushaar, an analyst at Merrill Lynch & Co.

Midwest Is Strongest

He predicted that the San Francisco-based company, preparing for its merger with Security Pacific, should nevertheless earn about $260 million in the quarter, down from $284.9 million in the third quarter.

The strongest region of the country will again be the Midwest, analysts said.

However, even it "has not been immune to the recession," said Kenneth Puglisi, an analyst at Keefe, Bruyette & Woods Inc. He forecast a slight rise in nonperforming assets at most banks in the region and earnings that virtually match the second quarter's.

Banks in New England, which have borne the brunt of hard times for more than a year, are showing signs of stabilizing.

Expenses are falling for the second straight quarter at Bank of Boston Corp. and Shawmut National Corp., while nonperforming assets are rising at a much slower pace. Analysts are forecasting modest profits of 5 cents a share at Bank of Boston and 3 cents a share at Shawmut, according to consensus estimates compiled by Zacks.

Enthusiastic Analyst

Bank of Boston earned 20 cents per share in the third quarter, and Shawmut gained 2 cents.

Though few analysts will venture further than to make some "speculative" recommendations in New England, Donaldson, Lufkin & Jenrette's bullish Thomas Brown rates Shawmut a "buy." He also recommends Wells Fargo.

Southern banks -- after a strong showing in the third quarter -- should continue to show muscle at yearend, said Ronald I. Mandle, an analyst at Sanford C. Bernstein & Co. He predicted nonperforming assets would fall about 4% at the four southeastern banks he follows, after rising 5% in the third quarter.

NCNB Corp. should be a top performer, Mr. Mandle said, although most analysts think it will take some extraordinary hits in preparation for its upcoming merger with C&S/Sovran Corp. They are predicting that the North Carolina-based superregional will earn 79 cents a share, according to the Zacks roundup, down from $1.07 per share in the third quarter.

New York Highs, Lows

J.P. Morgan & Co., Republic New York Corp., and Bankers Trust New York Corp. are expected to turn in solid performances, as they have all year. Citicorp, still reeling from $4 billion in sour real estate loans and high consumer delinquencies, will be lucky to break even, analysts said.

"We're looking for about 5 cents a share for Citi," said Merrill's Mr. Kraushaar. Zacks' consensus predicts a loss of 22 cents a share, compared with a loss of $2.72 in the third quarter.

Chase Manhattan Corp. will earn 68 cents, according to the Zacks survey, compared with 79 cents in the third quarter.

Real estate problems will continue to plague Chase, Mr. Kraushaar said, but cost control will help offset them.

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