Bank One Corp. said Wednesday that its restructuring plans and costs are pretty much on schedule-except for up to $200 million in fourth-quarter writedowns related to an automated teller machine business, auto leases, and other asset revaluations.
The Chicago-based company issued a statement reaffirming that net pretax restructuring and other costs related to the recent combination of Banc One Corp. and First Chicago NBD Corp. would total $1.25 billion, starting in the current quarter.
But the additional pretax charge of $150 million to $200 million, amounting to 8 to 11 cents a share, caught observers by surprise. All told, special charges could reduce this quarter's per-share earnings by 70 cents. The First Call Corp. analysts' earnings consensus is 89 cents, excluding charges.
"It's not good news that they need to take an additional charge not related to the merger, but 'tis the season," said Michael Mayo, an analyst with Credit Suisse First Boston.
"I think it's good they're biting the bullet and putting it behind them," said Katrina Blecher of Brown Brothers Harriman & Co.
The company would take up to 90% of its total merger-related charges in the fourth quarter, with the rest extended through the third quarter of 1999.
The current nonmerger charges were mainly attributed to the curtailing of an ambitious ATM program and to an auto leasing business.
Plans to install 18,000 teller machines in nonbanking locations such as department and convenience stores were halted at midyear when company officials deemed the program unprofitable. About 5,000 machines, labeled Rapid Cash, were actually deployed, outnumbering Bank One's other 4,000 ATMs.
Though the company would not break down the potential $200 million charge, it said a majority of it would be related to the leasing business. The company said that because of a used-car glut, it overestimated the prices it could get-the residual values-for vehicles it would sell after lease contracts expire.
"It's a reflection of the volatility of the market and pricing of used cars," said Bank One spokesman Thomas Kelly.
Analyst Michael Ancell of Edward Jones in St. Louis predicted Bank One will raise its auto leasing rates, and other banks would follow. He expects other big auto lenders to announce losses in their leasing businesses.
Through its Finance One subsidiary, Bank One has a $9 billion auto lease portfolio. "It is a profitable business in which we are a major player and we are committed to the business," Mr. Kelly said.
Analysts were also told the teller machine business would be profitable as a result of the writedown of machines and contracts.
"When they came up with the idea, it made a lot of sense," said Ms. Blecher. "I don't think they anticipated the increased competition for ATM networks. I think they kind of got caught up in the excitement."
"I view the additional charge as housecleaning and nothing more," said Keefe, Bruyette & Woods analyst Joseph Duwan. "It does put Rapid Cash behind them."
The company also said it expects a one-time pretax gain in the first 1999 quarter of up to $150 million, or 8 cents a share, for the sale of its interest in Electronic Payment Services Inc., which owns the MAC ATM network. Concord EFS Inc. of Memphis agreed last month to pay about $1 billion in stock to Bank One and its four co-owners.
Bank One also anticipates a gain of $250 million to $300 million for the anticipated first-quarter sale of Indiana branches to Union Planters Corp. of Memphis. The gain would offset some merger charges, reducing the anticipated post-merger costs of $1.5 billion to the net figure of about $1.25 billion