Two more large banking companies suffered double-digit earnings declines in the fourth quarter, but a late-December rebound in financial markets helped them meet or beat expectations.
While awaiting acquisition by Deutsche Bank, Bankers Trust Corp. said Thursday that profits fell 53%, to $96 million, partly because of losses in emerging markets trading.
The company-which warned Wall Street in early December that it would take a trading hit-earned 89 cents per share, beating analysts' consensus estimates by 31 cents.
BankBoston Corp. recorded a 12% dip in profits, to $207 million, citing weakness in some of its capital-markets-related activities. Earnings per share of 70 cents were in line with consensus estimates.
A rebounding market in the last two weeks of 1998 helped revive investment banking, underwriting, and some trading activities. That helped firms such as Bankers Trust, BankBoston, and J.P. Morgan & Co. boost revenues and meet or beat analysts' expectations.
"The business came back stronger than expected," according to Stephen Biggar, an analyst at S&P Equity Research. "The extent of the market comeback was impressive."
The New York-based company, which agreed in November to be acquired by Deutsche Bank, lost $6 million, or 38 cents per share for the full year.
A strong showing in the fourth quarter was particularly important for the $133.1 billion-asset company. In the third quarter-before that deal was reached-Bankers Trust posted a $488 million loss.
Market watchers had speculated that a dismal fourth quarter could change the German bank's mind. The stronger-than-expected results "assuaged fears that the Deutsche Bank deal would be derailed," said Diane Glossman, an analyst at Lehman Brothers.
In a statement Thursday, Bankers Trust chairman and chief executive officer Frank N. Newman said, "Our merger remains on track for completion in the second quarter, and our integration teams are making excellent progress."
The results included a $36 million charge for a previously announced cost-cutting program. Bankers Trust said it eliminated 400 positions during the quarter and closed offices, many of them in Latin America.
Analysts said that program, which aimed to cut $300 million from annual expenses, will probably be replaced by a broader, merger-related restructuring after the deal's completion this summer.
Noninterest revenues grew 8.4%, to $1.26 billion.
Corporate finance fees declined 10%, to $290 million. Trading in emerging markets, particularly in Asia, led to a loss of $161 million.
But revenues from investment banking roared back in the quarter, gaining 22%, to $659 million, because of a rebound in underwriting, the bank said.
Bankers Trust said it worked to reduce its exposure to emerging markets throughout the year, trimming operations in Asia and Latin America. Still, trading losses amounted to $184 million for the full year.
Net income for the full year declined 9.8%, to $792 million or $2.64 per share. The third quarter of 1998 included charges for acquisitions and restructurings.
Fee income rose 47%, to $601 million. Underwriting fees doubled, to $16 million. Advisory fees tripled, to $38 million. The bank attributed the gains to its acquisition in August of Robertson Stephens & Co., a San Francisco investment bank.
BankBoston posted earnings per share of 70 cents, which matched consensus estimates.
Some activities showed weakness. Syndication and agent fees declined 51%, to $17 million. Venture capital revenues declined 38%, to $42 million.
BankBoston said record earnings in Brazilian and Argentine operations- with gains of 30% and 15% over last year, respectively-helped offset some of the weakness in capital markets.
"While world financial markets continue to experience volatility, particularly in Latin America, our Latin American units continue to generate strong earnings as they historically have done in periods of market turmoil," said Charles K. Gifford, BankBoston's chairman and chief executive officer.
Trading profits and commissions rebounded in the quarter, to $19 million, from a loss of $9 million in the fourth quarter last year, largely because of higher profits in derivatives groups based in Argentina and Boston.
Still, a yearend loss of $3 million in trading was attributed to losses in emerging markets.
The quarter also included a $51 million gain on the sale of BankBoston's branch network in western Massachusetts and a $38 million gain on the sale of its U.S. institutional custody unit.
Expenses rose 36% in the quarter, to $816 million. The $73.5 billion- asset bank attributed the increase to the addition of employees from Robertson Stephens, branch expansion in Latin America, and the buildup of its corporate banking business. +++
BankBoston Corp. Boston Dollar amounts in millions (except per share) Fourth Quarter 4Q98 4Q97 Net income $206.9 $234.7 Per share 0.70 0.78 ROA 1.09% 1.37% ROE 17.21% 21.74% Net interest margin 4.13% 4.20% Net interest income 668.2 631.1 Noninterest income 600.5 408.4 Noninterest expense 815.9 600.5 Loss provision 120.0 40.0 Net chargeoffs 113.0 60.0 Year to Date 1998 1997 Net income $792.0 $879.2 Per share 2.64 2.82 ROA 1.10% 1.35% ROE 16.91% 20.05% Net interest margin 4.09% 4.25% Net interest income 2,549.6 2,453.0 Noninterest income 2,032.1 1,563.1 Noninterest expense 2,910.1 2,323.9 Loss provision 380.0 200.0 Net chargeoffs 364.0 279.0 Balance Sheet 12/31/98 12/31/97 Assets $73,513.0 $69,268.0 Deposits 48,500.0 45,761.0 Loans 42,806.0 43,980.0 Reserve/nonp. loans 201% 222% Nonperf. loans/loans 0.90% 0.70% Nonperf. assets/assets 0.50% 0.50% Nonperf. assets/loans + OREO 0.90% 0.80% Leverage cap. ratio 6.70%* 7.40% Tier 1 cap. ratio 7.20%* 8.00% Tier 1+2 cap. ratio 11.80%* 12.10%
Bankers Trust Corp. New York Dollar amounts in millions (except per share) Fourth Quarter 4Q98 4Q97 Net income $96.0 $207.0 Per share 0.89 1.82 ROA 0.26% 0.56% ROE 8.20% 14.80% Net interest margin 1.04% 1.35% Net interest income 268.0 373.0 Noninterest income 1,264.0 1,166.0 Noninterest expense 1,274.0 1,233.0 Loss provision 100.0 20.0 Net chargeoffs 144.0 (5.0) Year to Date 1998 1997 Net income ($6.0) $866.0 Per share (0.38) 7.66 ROA NM 0.63% ROE NM 15.60% Net interest margin 1.16% 1.33% Net interest income 1,372.0 1,359.0 Noninterest income 4,042.0 4,891.0 Noninterest expense 5,097.0 4,981.0 Loss provision 330.0 30.0 Net chargeoffs 396.0 23.0 Balance Sheet 12/31/98 12/31/97 Assets $133,115.0 $140,102.0 Deposits 37,334.0 42,830.0 Loans 22,633.0 19,106.0 Reserve/nonp. loans 166% 291% Nonperf. loans/loans 1.70% 1.20% Nonperf. assets/assets 0.60% 0.40% Nonperf. assets/loans + OREO 3.20% 2.50% Leverage cap. ratio 3.50%* 4.40% Tier 1 cap. ratio 7.60%* 8.30% Tier 1+2 cap. ratio 13.80%* 14.10%
NM - not meaningful
* Estimated ===