Jolted by sharply rising rates, Banc One Corp. on Monday said it would take a fourth-quarter after-tax charge of up to $235 million, or 58 cents a share, mostly for losses on sales of securities.
The $88.2 billion-asset banking company said it incurred an after-tax loss of $170 million on the sale of $5.7 billion worth of fixed-rate securities. Cost-cutting moves will prompt up to $65 million of additional after-tax charges, Banc One said.
"We are determined to take the necessary steps to put the issue of interest rate sensitivity behind us and enhance operating efficiency," said John B. McCoy, Banc One's chairman and chief executive.
Reinvesting proceeds from bond sales in short-term assets "has virtually eliminated sensitivity to increases in short-term rates," Banc One said.
Columbus, Ohio-based Banc One also expanded its share-repurchase authorization to 18 million shares from 10 million shares. Banc One's stock lost 37.5 cents on Monday, closing at $25.625.
Standard & Poor's Corp. affirmed Banc One's credit ratings, saying the charge would have "almost no impact" on the bank's capitalization.
The massive fourth-quarter charge punctuates a vexatious era for Banc One, which saw its sophisticated asset-liability management strategy unravel in the face of sharply rising rates.
Using an extensive derivatives portfolio, the banking company positioned itself so that liabilities were rolling over conspicuously faster than assets. That fueled stellar profits while rates were failing but left Bane One vulnerable when rates soared.
In a conference call with analysts, Banc One said it would close up to 100 branches over the next 18 months while eliminating up to 4,300 full-time positions. Most of the work force reduction will be achieved through attrition, Bane One said.
Joseph Stieven, a banking analyst with Stifel, Nicolaus & Co., predicted that Banc One's managers will stabilize the company and resume delivering above-average results. But, he conceded, "there is no doubt that it will take some time for Banc One to regain investors' confidence."
Carole Berger, a banking analyst with Salomon Brothers Inc., said deteriorating loan pricing contributed heavily to Banc One's reversal. Bane One's yield on earning assets fell to 8.3% in the third quarter, down 28 basis points from a year earlier. By contrast, its cost of deposits rose 38 basis points, to 2.66%, and its cost of borrowed funds rose 114 basis points, to 4.89%.
BancOne said it is installing tougher loan pricing guidelines. But analysts said it is not clear whether increased revenues on the loans that get booked will offset lost revenues on the loans turned down by price-sensitive customers.