Banks continued to mine the gold in their investment portfolios during the second quarter.
The 130 bank holding companies tracked by Keefe, Bruyette & Woods Inc. recognized more than $500 million in gains from the sale of debt securities in the period.
That was down from the $874 million booked in the first quarter. Analyst said increased scrutiny by the Securities and Exchange Commission of bank investment activities may have cooled bond sales a bit.
Dwarfing All of 1990
But securities gains remained high by historical standards. For example, for all of 1990, such gains totaled $260 million.
Bond sales again supplied a significant chunk of profits. The 130 Keefe banks earned $1.48 billion in the second quarter.
Analysts said banks sold securities to take advantage of rising bond prices in the quarter. Some also needed the money to bolster capital or to add to their loan-loss reserves.
Except for J. P. Morgan & Co., which took a $512 million gain in the second quarter, regional banks took the biggest securities gains.
These included Fleet Financial Group Providence, R.I., with $55 million; PNC Financial Corp., Pittsburgh, with $51 million; MNC Financial Inc., Baltimore, with $36 million; and Huntington Bancshares, Columbus, Ohio, with $28 million.
Gains Seen in 3d Quarter
"Securities gains were a smaller part of the earnings story in the second quarter, but gains were not nonexistent, and they won't be nonexistent in the third quarter," said Nancy Bush, regional bank analyst at Brown Brothers Harriman & Co.
"I'm Hearing more banks talking about building their capital, letting these gains drop down to the bottom line," she added. "With the regulators calling for consistently higher levels of capital, banks are saying, |Why not use securities gains?'"
A number of banks retain substantial unrealized gains that could be used in the third quarter, she said.
First union Corp., Charlotte, N.C., has about $500 million in unrealized securities gains on its balance sheet, of which about one-third are in off-balance sheet instruments.
Sales' Effect on SEC
Fleet had about $462 million in net unrealized gains at June 30, of which $175 million was in a "held for sale" account, meaning the securities are likely to be sold at some point.
Hefty gains on the sale of bonds have caused the SEC to push for market-value accounting for all banks securities.
Banks have customarily accounted for nearly all investment securities at historic cost. The SEC this year prodded a number of banks to assign securities to the "held for sale" category, meaning they must be valued at the lower of cost or market value.
In a related matter, the Financial Accounting Standards Board approved a draft rule Wednesday that would also push banks to value a larger portion of their investment securities at market.
The draft expected to be published by the end of September, with public comments accepted for 90 days. Public hearings are scheduled Dec. 18 and Jan. 7 and 8. The rule would take effect at most banks in the first quarter of 1994.