Profitability leveled off last year at the nation's largest banking companies after three years of sharp gains, according to an American Banker survey.

Analysts said the banks had been heading for record profits last year until trading revenues got clobbered in the fourth quarter as executives mistakenly guessed that interest rates would remain level.

The survey, which examined the 64 U.S. banks with $10 billion of assets or more, found a mean return on assets for those banks of 1.15% at the end of 1994. ROA had been 1.14% in 1993.

"It was a good year comparably but not quite as good as 1993, and I think ROA will trend down in 1995," said Morgan Stanley & Co. analyst Dennis Shea.

Though nonperforming-asset levels dropped to healthy lows, and the banks cut expenses by laying off thousands in restructurings, ROA increases did not match those of previous years.

For instance, the mean ROA jumped to 0.98% in 1992, from 0.69% in 1991.

Among the largest bank companies, those with $70 billion of assets or more, ROA in 1994 dropped to 0.99%, from 1.13%.

ROA for superregionals, banks with at least $20 billion of assets, declined in 1994 to 1.20%, from 1.24%.

Chemical Banking Corp. showed one of the steepest drops in profitability calculated at yearend, with ROA slumping to 0.78% from 1.11%. Declines in trading revenues and a major restructuring charge battered Chemical's fourth-quarter earnings, which sank 48% from the same period of 1993.

The nation's third-largest bank also lost $70 million when a trader made a bad bet on the Mexican peso.

Bankers Trust New York Corp.'s fourth-quarter trading losses went a long way toward shattering its 1994 ROA, dropping it to 0.59%, from 1.16% a year earlier.

BT's full-year ROA was the third worst of the banks surveyed. Memphis- based Union Planters Corp. had the lowest ROA, followed by San Francisco- based Union Bank.

Bankers Trust's ROA ranked 33d out of 64 in 1993.

J.P. Morgan & Co.'s trading revenues plummeted 75% in the fourth quarter, pushing down profits for the period by 51%, to $193 million, and forcing ROA down to 0.70% for the year. For all of 1993, Morgan's ROA was 1.08%.

Regional banks took it on the chin as the Federal Reserve Board raised interest rates 250 basis points last year.

Pittsburgh-based PNC Bank Corp. suffered a $79 million loss after selling $1.8 billion of fixed-rate securities in the last week of December, a move that depressed its full-year ROA ranking to 47th, from eighth in 1993.

Rising interest rates took their toll on other banks as well, including Cleveland-based Keycorp and Columbus, Ohio-based Banc One Corp.

Banc One took a $255 million pretax loss on the sale of securities in the fourth quarter.

Wall Street was not pleased.

"PNC knocked our socks off in October and November with a series of disclosures about their interest rate mismatch," said David Berry, an analyst at Keefe, Bruyette & Woods Inc.

"It created doubts about banks' ability to manage interest rate risk, especially since there was a consensus that rates were going to go a lot higher," he said.

The American Banker survey found that the big companies' stock price market-to-book ratio declined to 135.09% for 1994, from 149.39% in 1993.

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