Chase Manhattan Corp. rounded out a banner quarter for money-center banks, soundly topping Wall Street's earnings expectations Wednesday on strong investment banking revenues.
Earnings at Chase rose 16.2%, to $1.36 billion, or $1.59 a share, beating the analysts' consensus by four cents.
Southern regional banks for the most part met expectations, helped by solid loan growth.
The exception was Regions Financial Corp. in Birmingham, Ala., which reported results late Tuesday. Its profits of $146 million were 13% more than a year earlier but included a $67.2 million pretax gain from sale of its credit card portfolio. Without the gain, its net income of 58 cents a share was a penny shy of the consensus.
Wachovia Corp. in Winston-Salem, N.C., said its net income was flat compared with a year earlier, at $244.7 million, because of one-time charges. Excluding these charges, the company earned $1.30 per share, meeting expectations. Southtrust Corp. of Birmingham said profits rose 13%, to $118.1 million, or 70 cents a share, matching the consensus.
Analysts said the results indicated that banks without large capital markets gains are struggling to maintain earnings momentum in the face of rising interest rates. "The regional banks will probably have a tougher time with that than the money-centers," said Lawrence Cohn, an analyst at Ryan, Beck & Co.
At the same time, the reliability of venture capital gains has come into question during the market turmoil of the last few weeks.
Chase ManhattanStrong markets during most of the first quarter propelled revenue from merger and acquisition advisory services, underwriting, and other capital markets activities and more than offset weaker results from interest rate-sensitive consumer banking businesses.
Revenues climbed 15%, to $5.93 billion.
Chase, with $390 billion of assets, said revenues from global wholesale and investment banking rose 26% during the quarter, to $3 billion, and profits from the group rose 19%, to $942 million.
Investment banking fees more than doubled, to $648 million, reflecting the contributions of what is now named Chase H&Q, the recently acquired San Francisco-based firm that brings Chase a specialty in underwriting stocks for technology and other New Economy companies. Trading revenues rose 25%, to $1.05 billion.
Gains from private equity investments were $500 million, up 54% from last year but less than half the record fourth-quarter gain. Chase said $341 million of the first-quarter gain was realized and $159 million worth was the marked-to-market value of securities still held in portfolio.
During the first few volatile weeks of April, Chase has seen a $930 million decline in the marked-to-market value of public securities in its portfolio. Including a discount Chase uses to value its portfolio, that would amount to a $480 million decline, the company said. This has been partially offset by a $130 million gain on the sale this month of a position in Triton Cellular, Chase said.
In a conference call with analysts, Marc J. Shapiro, vice chairman of finance and risk management, said the combination of Chase's wholesale banking expertise, H&Q's investment banking experience, and the asset management skills of London-based Flemings - which Chase has agreed to buy for $7.7 billion - will "move the company to even higher growth rates."
Revenues from consumer banking services were flat from last year, at $2.4 billion. After expenses, profits on the retail business fell 12%, to $348 million. Chase said strong results in branch banking, middle-market lending, retail brokerage sales, and mortgages were not enough to overcome narrowing margins in the credit card business and a $100 million charge for losses on automobile lease residuals.
Card revenues declined 4%, to $944 million. Net chargeoffs were 5.41%, down from 6.11% in the fourth quarter but up from 5.24% in the first quarter last year. Revenues from diversified financial services, which includes Chase's auto lending group, fell 24%, to $193 million. Home finance, however, reported a 17% gain in revenues, to $324 million, as income from mortgage servicing offset the impact of interest rate hikes.
Revenues from custody and securities processing rose 17%, to $851 million, and profits rose 39%, to $151 million.
Expenses rose 19%, to $3.5 billion.
Chase's stock price closed down $2.50 a share, at $78.
WachoviaFirst-quarter results included a previously announced $20 million charge to settle a decade-old lawsuit Wachovia inherited in 1991 with the purchase of South Carolina National Bank.
Wachovia, with $69 billion of assets, said it had strong loan growth and a surge in fee income from investment product sales.
Its loan portfolio grew 9.3% from a year earlier, to $50.6 billion, fueled by a 13.3% increase in commercial loans, to $17.9 billion. Interest income was $1.3 billion, up 10% from last year. Nonperforming assets rose to $246.1 million, up 10% from the fourth quarter "primarily due to the deterioration of one commercial loan," the company said.
Nonperforming assets were 44.4% higher than a year earlier, when they totaled $170.5 million.
Fee income rose 41.2%, to $470.9 million. The company said it is getting a lift from last year's deals, including a those for trust banking company Offitbank Holdings Inc. and for retail brokerage Interstate/ Johnson Lane Inc. Fees from investment sales quadrupled from a year earlier, to $96.8 million.
"We are seeing Wachovia execute on their wealth management strategy, which is a very positive sign for them," said Christopher Marinac, an analyst at Robinson-Humphrey Co. in Atlanta. "It was an impressive quarter for fee income."
Expenses, including the charge, rose 29.6%, to $637.9 million.
Wachovia's shares fell $2.125, to $63.625.
Regions FinancialThe $41.4 billion-asset banking company said loans rose 14%, to $29 billion, contributing to a 17.1% rise in net interest income, to $780.2 million.
Carl E. Jones Jr., president and chief executive officer, said in a statement that he is "very pleased with the strong growth in loans we experienced during the first quarter. We continue to reap the benefits of a strong southeastern economy."
Nonperforming assets rose 6% from the fourth quarter, to $279.8 million, but fell 5% from the year before. Expenses rose 3.3%, to $271.1 million.
Noninterest income, which included the gain on a credit card portfolio sale, rose 16.5%, to $166.8 million. Mortgages fees dropped 33% from last year, to $21.9 million.
Analysts said they were disappointed with the company's results, in part because many had expected Regions to have a bigger gain in interest income. Charles N. Ernst, an analyst at Putnam, Lovell, de Guardiola & Thornton Inc. in New York, said that without the one-time items flat income growth amounted to "a pretty weak quarter."
Regions' shares fell 31.25 cents, to $20.9375.
SouthtrustThe $43.9 billion asset company also had torrid loan growth and said a continuing sales push in its branches has helped boost deposits. Total loans rose 15%, to $31.9 billion, and deposits rose 19.2%, to $28.8 billion.
Nonperforming assets rose 12.9% from the fourth quarter but were down 5% from a year earlier, at $183.8 million.
As with other southern and midwestern banking companies, Southtrust's lending results showed the strain of rising interest rates. Fees from mortgage banking fell 45% from last year, to $8.4 million. The $6.6 billion mortgage portfolio made up 20% of the company's loan total.
Southtrust said it is working to diversify its loan portfolio with middle-market, small-business, and consumer credits. "We continue to experience strong growth in each of our markets," said Wallace D. Malone Jr., chairman and chief executive officer, in a statement. "While the rising interest rate environment creates challenges for regional banks, Southtrust has been making the necessary adjustments and investments to continually grow a quality earnings stream into the future."
Fee income rose 2%, to $113.5 million. Service charges on deposits rose 18%, to $54.6 million, and helped cover the decline in mortgage fees.
"Southtrust has the same pressures on it as all banks, but I believe their ability to manage that impact is better than at most of their rivals," said Robinson-Humphrey's Mr. Marinac.
Expenses rose 8.6%, to $263.6 million.
Southtrust shares fell 75 cents, to $24.875.