Taking a large step toward a corporate turnaround, Bankers Trust New York Corp. reported Thursday that its fourth-quarter earnings jumped 16%, to $147 million.
Boosted by gains in its securities trading business and a modest recovery in its controversial derivatives business, the company earned $1.59 on a per-share basis, compared to $1.36 in the same period of 1995. Excluding an unexepected charge related to accounting, results were in line with analysts' consensus estimate.
The quarterly boost helped Bankers Trust finish the year with net income of $612 million, an almost threefold increase from 1995.
The results were sweet vindication for the $102 billion-asset banking company, which predicted in its 1995 annual report that it would turn in 1996 earnings "comparable" to the $615 million it earned in 1994.
"I think it's very impressive," said Robert Albertson, an analyst at Goldman Sachs. "They are on track."
The recovery at the nation's seventh-largest banking company also underscores that selling derivatives products to corporate customers remains a viable business.
Bankers Trust once earned as much as one-third of its profits from derivatives. But 1994 lawsuits filed by unhappy derivatives customers, including consumer products giant Procter & Gamble, tarnished the bank's reputation.
These recent results demonstrate the bank is clawing its way back into this volatile business. Bankers Trust generated $9 million in net earnings on $115 million in risk management revenues, compared with a $44 million loss on $34 million in revenues during the same period a year earlier.
Bankers Trust shares closed Thursday down $1.875 to $85.375, as the Standard & Poor's bank stock index fell 1.1%.
Analysts are attributing the pickup in Bankers Trust's derivatives business, in part, to increased business volume in North America and Europe. Under chief executive Frank Newman, the bank is providing more conservative hedging devices rather than the risky, highly leveraged products that created problems in 1994.
Mr. Newman also has said he wants the bank to become less reliant on this business.
"The increased distance away from the problems of 1994 has helped this bank and the derivatives business in general," said David Berry, an analyst with Keefe, Bruyette & Woods.
Diane Glossman, an analyst at Salomon Brothers, cautioned that the bank's risk management business is a still a far cry from being billed a success again.
"A jump from $3 million to $9 million in quarterly earnings is not a lot," she said. "They are still in the turnaround mode."
But the bank showed stronger results in its securities trading earnings growth. Buoyed by strong stock and bond markets in the fourth quarter, other banks such as J.P. Morgan & Co. and Chase Manhattan Corp., also reported robust gains in trading.
Earnings in Bankers Trust's trading and sales business jumped to $35 million in the fourth quarter, a 40% increase.
The bank's highly touted junk bond underwriting business didn't disappoint either.
This business comprises a sizable share of the bank's corporate finance fees. And for the quarter, corporate finance fee revenue jumped 32% to $166 million from the period a year earlier. +++
Bankers Trust New York Corp. New York Dollar amounts in millions (except per share) Fourth Quarter 4Q96 4Q95 Net income $147.0 $126.0 Per share 1.59 1.36 ROA 0.47% 0.44% ROE 11.70% 10.60% Net interest margin 1.08% 0.99% Net interest income 266.0 215.0 Noninterest income 840.0 739.0 Noninterest expense 893.0 758.0 Loss provision - 10.0 Net chargeoffs (6.0) 50.0 Year to Date 1996 1995 Net income $612.0 $215.0 Per share 6.78 2.03 ROA 0.51% 0.20% ROE 12.90% 4.00% Net interest margin 1.05% 1.05% Net interest income 982.0 858.0 Noninterest income 3,199.0 2,423.0 Noninterest expense 3,288.0 2,898.0 Loss provision 5.0 31.0 Net chargeoffs 24.0 291.0 Balance Sheet 12/31/96 12/31/95 Assets $120,235.0 $104,002.0 Deposits 30,315.0 25,708.0 Loans 15,826.0 12,633.0 Reserve/nonp. loans 171% 133% Nonperf. loans/loans 2.90% 5.90% Nonperf. assets/assets 0.60% 1.10% Nonperf. assets/loans + OREO 4.40% 9.10% Leverage cap. ratio 5.50%* 5.10% Tier 1 cap. ratio 8.50%* 8.50% Tier 1+2 cap. ratio 13.40%* 13.90%