Three of the nation's largest banks reported lackluster third-quarter earnings Thursday, reinforcing analysts' concerns that sluggish revenue growth, rising costs, and problems in consumer lending could soon take their toll on the industry.

Cleveland-based KeyCorp posted a 1% profit decline, to $207 million; it blamed both flat revenues and rising expenses. Bankers Trust New York Corp., meanwhile, reported a 14% gain, to $176 million, driven largely by the retirement of preferred stock and sale of an insurance unit.

A third company, Bank of Boston Corp., said its profits fell 54%, to $80 million, due to a $117 million charge for costs related to its July purchase of BayBanks Inc. But its report was the bright spot of the day, as Wall Street cheered the company's highly diversified business mix.

All the results were in line with expectations. But analysts noted that the banks relied more on stock buybacks than revenue growth to fuel profits.

The results were "sloppy and sluggish," said Thomas D. McCandless, a bank analyst at Natwest Securities Corp. "Revenues are slowing down, expenses are not, and chargeoffs are going up."

Sally Pope Davis, a banking analyst at Goldman, Sachs & Co., agreed. "Banks that are still mostly reliant on spread income and don't have a lot of other fee-type businesses may find the current environment very difficult," she warned.

Bankers Trust

Analysts reacted with a noticeable lack of enthusiasm to the profit jump at Bankers Trust. Many expressed concern that the $121 billion-asset bank has yet to move beyond the negative impact of several derivatives-related lawsuits settled out of court this year.

"They have a ways to go before they reach a sustainable 15% return on equity," said Ron Mandle, a banking analyst at Sanford C. Bernstein & Co.

Results looked even weaker when the effect of an $8 million gain on the preferred stock sale and an $18 million after-tax profit from the sale of a life insurance company were taken into account.

"Their investment management operations basically broke even, despite having some $200 billion under management. That's not right," said Raphael Soifer, a banking analyst at Brown Brothers, Harriman & Co.

Similarly, he said results in risk management, once a powerhouse revenue generator for the bank, were also basically flat. Corporate finance did well but couldn't compensate for weak earnings in other areas.

Two bright spots indicated that Bankers Trust is making some headway. Investment banking revenues rose 26%, to $231 million, while revenues from operations in Asia, Latin America, Australia, and New Zealand climbed 28%, to $291 million.

Bank of Boston

When merger-related charges from the BayBanks deal are excluded, Bank of Boston's profit jumped 13%, to $197 million.

Revenues leaped 2%, to $933 million, prompting analysts to hail Bank of Boston's healthy revenue mix. The bank's international operations, particularly in Latin America, and its capital markets business are yielding benefits, they said.

"Their strategy is finally paying off, and they have enormous momentum going into 1997," said Nancy Bush, a banking analyst at Brown Brothers Harriman.

The bank's recent push into capital markets and other fee-based businesses both at home and abroad translated into a 10% rise in noninterest income, to $337 million.

Meanwhile, net interest revenues rose $20 million, to $596 million, as the bank's retail and commercial banking base strengthened both in the wake of the merger and as a result of higher-yielding assets in Latin America.

In a promising sign that the recent merger with BayBanks would soon add to the bottom line, Bank of Boston raised its estimate of annual savings from the deal to $230 million from $190 million.

"They're very much on target," said Goldman Sachs' Ms. Davis. "They have always had potential, but they're capitalizing on it a lot more than they have in the past."

KeyCorp

Flat revenues and high expenses were the story of the quarter at $65.4 billion-asset KeyCorp, analysts said.

The bank suffered primarily from an $11 million after-tax charge to replenish the Savings Association Insurance Fund.

The Cleveland company met analysts' earnings estimates largely through gains from the securitization of student loans, sale of credit card receivables, and venture capital gains. Those contributed to a 23% increase in noninterest income, to $289 million.

Joseph Duwan, an analyst at Keefe, Bruyette & Woods Inc., said expenses were higher than he had anticipated and net interest income was weak.

Even excluding the SAIF charge, noninterest expense rose 7%, to $615 million, due to acquisition charges and marketing and personnel costs. KeyCorp chairman and chief executive Robert W. Gillespie said he anticipates lower expenditures in the fourth quarter. He announced an effort to reduce the ratio of expenses to revenues from 61% to 55% by the end of next year.

That pledge didn't fly with Natwest Securities' Mr. McCandless. He said he believes KeyCorp's high-octane marketing efforts will not pay off until 1998. In the meantime, Mr. McCandless added, KeyCorp must grow revenues.

Net interest income improved 3% from a year ago, to $683 million. Loan growth was flat; improvement in the net interest margin was largely offset by a $439 million reduction in earning assets. KeyCorp is allowing its mortgage loans to mature, while it concentrates on higher-yielding home equity and other consumer loans.

The provision for loan losses in the quarter was $49 million, which matched net loan chargeoffs. Chargeoffs and the loss provision were up 81% from a year ago. Analysts noted that credit quality at KeyCorp appears to be stabilizing compared with the second quarter.

Written by Jacqueline S. Gold from reporting by James R. Kraus and Brett Chase. +++

KeyCorp Cleveland, Ohio Dollar amounts in millions (except per share) Third Quarter 3Q96 3Q95 Net income $207.0 $209.0 Per share 0.90 0.90 ROA 1.28% 1.25% ROE 16.73% 18.07% Net interest margin 4.82% 4.50% Net interest income 696.0 680.0 Noninterest income 289.0 235.0 Noninterest expense 615.0 561.0 Loss provision 49.0 27.0 Net chargeoffs 49.0 27.0 Year to Date 1996 1995 Net income $632.0 $618.0 Per share 2.70 2.59 ROA 1.30% 1.24% ROE 16.76% 17.72% Net interest margin 4.78% 4.46% Net interest income 2,072.0 2,020.0 Noninterest income 802.0 629.0 Noninterest expense 1,764.0 1,690.0 Loss provision 140.0 66.0 Net chargeoffs 138.0 65.0 Balance Sheet 9/30/96 9/30/95 Assets $65,356.0 $67,967.0 Deposits 44,523.0 47,905.0 Loans 48,291.0 48,410.0 Reserve/nonp. loans 252.91% 280.53% Nonperf. loans/loans 0.71% 0.65% Nonperf. assets/assets 0.61% 0.54% Nonperf. assets/loans + OREO 0.82% 0.76% Leverage cap. ratio 6.39%* 6.19% Tier 1 cap. ratio 7.35%* 7.55% Tier 1+2 cap. ratio 12.28%* 10.84%

*Estimated

Bankers Trust New York Corp. New York Dollar amounts in millions (except per share) Third Quarter 3Q96 3Q95 Net income $176.0 $155.0 Per share 1.99 1.72 ROA 0.57% 0.56% ROE 15.00% 13.51% Net interest margin 1.02% 1.04% Net interest income 252.0 215.0 Noninterest income 811.0 755.0 Noninterest expense 809.0 728.0 Loss provision NA 7.0 Net chargeoffs 5.0 218.0 Year to Date 1996 1995 Net income $465.0 $89.0 Per share 5.19 0.66 ROA 0.53% 0.11% ROE 13.30% 1.72% Net interest margin 1.04% 1.07% Net interest income 716.0 643.0 Noninterest income 2,359.0 1,684.0 Noninterest expense 2,395.0 2,140.0 Loss provision 5.0 21.0 Net chargeoffs 30.0 241.0 Balance Sheet 9/30/96 9/30/95 Assets $120,847.0 $103,949.0 Deposits 28,672.0 24,157.0 Loans 15,264.0 12,786.0 Reserve/nonp. loans 198% 137% Nonperf. loans/loans 3.20% 5.90% Nonperf. assets/assets 0.70% 1.20% Nonperf. assets/loans + OREO 5.20% 9.20% Leverage cap. ratio 5.30%* 5.50% Tier 1 cap. ratio 8.10%* 8.10% Tier 1+2 cap. ratio 12.80%* 13.00%

*Estimated

Bank of Boston Corp. Boston Dollar amounts in millions (except per share) Third Quarter 3Q96 3Q95 Net income $80.0 $174.5 Per share 0.45 1.05 ROA 0.53% 1.22% ROE 6.61% 16.75% Net interest margin 4.40% 4.53% Net interest income 591.4 569.6 Noninterest income 336.5 305.8 Noninterest expense 712.4 517.9 Loss provision 57.0 51.0 Net chargeoffs 55.0 45.0 Year to Date 1996 1995 Net income $448.6 $498.1 Per share 2.69 3.00 ROA 1.02% 1.21% ROE 13.35% 16.95% Net interest margin 4.40% 4.61% Net interest income 1,728.4 1,675.8 Noninterest income 1,004.6 942.1 Noninterest expense 1,771.6 1,530.4 Loss provision 171.0 194.0 Net chargeoffs 155.0 145.0 Balance Sheet 9/30/96 9/30/95 Assets $61,963.0 $57,559.0 Deposits 43,328.0 39,624.0 Loans 42,053.0 39,188.0 Reserve/nonp. loans 202% 208% Nonperf. loans/loans 1.10% 1.10% Nonperf. assets/assets 0.80% 0.90% Nonperf. assets/loans + OREO 1.20% 1.30% Leverage cap. ratio 7.20%* 7.40% Tier 1 cap. ratio 8.20%* 8.40% Tier 1+2 cap. ratio 12.60%* 12.80%

*Estimated ===

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