Boosted by its acquisition of investment bank Alex. Brown & Sons, Bankers Trust New York Corp. on Thursday posted a 13% jump in fourth- quarter profits, to $207 million, despite heavy trading losses in Asia.
Earnings per share of $1.82 beat Wall Street's consensus estimates by 9 cents.
"The increase in corporate finance fees to a record $324 million underscored the continued strong momentum of our merger and our ability to provide clients with the full range of financing alternatives," said chairman and chief executive officer Frank Newman.
These gains "were achieved despite volatile market conditions, particularly in emerging markets," he said.
Investment banking profits soared 77%, to $147 million. Corporate finance profits jumped 20% on gains in fees from merger advisory services and bond and equity financings.
"They are more focused on corporate finance and they are managing risk better," said David S. Berry, an analyst at Keefe, Bruyette & Woods. "But they aren't bulletproof."
Indeed, Bankers Trust, like other money-center banks, had to overcome trading losses in Asia.
Trading revenue at the $122.5 billion-asset bank dropped nearly fourfold in the quarter, to $72 million.
Bankers Trust also suffered a $27 million loss in its Asian operations, compared with a $5 million profit in the same period a year earlier. The bank said the loss resulted from trades in fixed-income securities and swaps with Asian counterparties.
Trading losses affected profits in other core businesses as well. Risk management services had a loss of $41 million in the quarter, compared with a gain of $3 million in the same period a year earlier. The bank attributed the decline to losses in equity derivatives.
But analysts said Bankers Trust survived the tumult in Asia better than some of the other New York banks because its credit exposure is more heavily weighted toward U.S. and European markets. Bankers Trust's lending abroad represents about one-third of its total portfolio, while cross- border loans at J.P. Morgan & Co., for example, equal a much greater proportion of its total credit exposure.
Nonperforming assets at Bankers Trust totaled $38 million in the quarter, almost four times the level in the 1996 period, largely because of the swap losses in Asia, the bank said. Chargeoffs in the quarter totaled $41 million. About half were related to Asian derivatives.
Mr. Newman's plan to switch the emphasis at Bankers Trust from trading to merger advisory, securities underwriting, and asset management more than cushioned the blows from the East, however.
For the full-year 1997, Bankers Trust had net income of $866 million, up 13%.
"The revenue potential that they were looking for with the Alex. Brown acquisition is there," said Lawrence Cohn, an analyst at Ryan Beck & Co. "They said they wanted to create a one-stop opportunity for clients, and they're beginning to prove that true."
Analysts said the September purchase of Baltimore-based Alex. Brown helped broaden Bankers Trust's customer base. Cross-selling between Bankers Trust and Alex. Brown accounted for one-third of new sales made in the fourth quarter.
Quarterly results were also affected by two special charges: a $41 million after-tax gain on the sale of the bank's defined contribution plan record keeping and participant services business, and a $27 million after- tax charge related to legal claims and the relocation of some Asia operations. +++
Bankers Trust New York Corp. New York Dollar amounts in millions (except per share) Fourth Quarter 4Q97 4Q96 Net income $207.0 $184.0 Per share 1.82 1.59 ROA 0.56% 0.58% ROE 14.80% 13.20% Net interest margin 1.35% 1.16% Net interest income 373.0 287.0 Noninterest income 1,166.0 1,068.0 Noninterest expense 1,233.0 1,083.0 Loss provision 20.0 0.0 Net chargeoffs (5.0) (6.0) Year to Date 1997 1996 Net income $866.0 $766.0 Per share 7.66 6.76 ROA 0.63% 0.62% ROE 15.60% 14.50% Net interest margin 1.33% 1.13% Net interest income 1,359.0 1,057.0 Noninterest income 4,891.0 4,117.0 Noninterest expense 4,981.0 4,038.0 Loss provision 30.0 5.0 Net chargeoffs 23.0 24.0 Balance Sheet 12/31/97 12/31/96 Assets $140,102.0 $122,543.0 Deposits 42,830.0 30,315.0 Loans 19,805.0 15,880.0 Reserve/nonp. loans 291% 171% Nonperf. loans/loans 1.20% 2.80% Nonperf. assets/assets 0.40% 0.60% Nonperf. assets/loans + OREO 2.50% 4.40% Leverage cap. ratio 4.40%* 5.90% Tier 1 cap. ratio 8.30%* 9.30% Tier 1+2 cap. ratio 14.20%* 13.80% * Estimated ===