Concerns about consumer credit-quality problems heated up Tuesday as some of the nation's biggest banks reported earnings.

Chase Manhattan Corp., the nation's largest bank, said its second- quarter net income rose 17%, to $856 million. Citicorp, the second-largest, posted a 12% gain, to $952 million.

Analysts, however, said they were disturbed by a slow but steady rise in credit chargeoffs at both institutions. They said Citicorp, which holds the biggest credit card portfolio of any bank in the country, is particularly vulnerable.

Citicorp "has very heavy exposure to credit cards, and we think this is not a business that has much opportunity over the next few years," said Lawrence Cohn, a banking analyst at PaineWebber Inc.

Likewise, Columbus, Ohio-based Banc One Corp., a major credit card issuer, began to curb its card marketing in the second quarter. The banking company earned $355 million for the period, a 15.4% improvement.

At Pittsburgh-based Mellon Bank Corp., the loan-loss provision was up $5 million, to $25 million, in anticipation of further losses from the bank's nationally marketed CornerStone credit card. Mellon earned $169 million in the quarter, an increase of 4.3%.

Even greater disappointment came from Wells Fargo & Co., although not related to credit card chargeoffs. San Francisco-based Wells posted a 56% jump in quarterly profits, to $363 million, but analysts had expected better. Earnings per share of $3.61 were 49 cents shy of the consensus estimate.

Results were skewed by the bank's April 1 merger with First Interstate Bancorp, which more than doubled assets, to $108 billion, and created $7.2 billion of goodwill.

At Chase, the April 1 merger with Chemical Banking Corp. had a positive effect. Earnings were boosted $120 million by merger-related savings.

"Results were impeccable," said David Berry, a banking analyst at Keefe, Bruyette & Woods Inc. He predicted Chase would maintain earnings momentum despite slack revenue growth because many cost savings from the merger have yet to kick in.

"In a slower business environment, Chase's growth is more assured than most of its competitors'," observed Mr. Cohn.

Chase's credit card chargeoffs rose to $279 million, from $207 million in the year-earlier period, up 12 basis points to 4.78% of average managed receivables.

Receivables past due 90 days or more rose to $461 million, compared with $390 million the year before.

Separately, Chase said Tuesday that vice chairman E. Michel Kruse had resigned to pursue other interests. He is one of several senior executives to leave Chase since the merger.

Mr. Kruse said, "The critical integration steps in my areas of responsibility have been completed." He had been responsible for market and credit risk management, finance, and information and transaction services.

At Citicorp, analysts noted both good news and bad news

"The good news at Citi is continuing growth in its local currency emerging markets business," said Raphael Soifer of Brown Brothers, Harriman & Co. "The bad news is that, along with the rest of the industry, their credit card chargeoffs continue to rise."

Net credit card losses in Citicorp's U.S. card portfolio increased to $522 million, up $55 million from the 1996 first quarter and $159 million from the second quarter of last year. That puts the bank's loss ratio at 4.99%, up from 3.75% a year ago.

Results from global relationship banking, or banking with multinational companies, were also weak.

Still, analysts emphasized that Citicorp's broad international network as well as its diversity will help the bank smooth out any setbacks it might experience in credit cards or global relationship banking.

"They turned in a pretty solid performance," Mr. Berry said. "And they have enough firepower to make up for any shortfall as a result of credit card chargeoffs.

Credit card loans were a major revenue driver for Banc One, and without it the $97 billion-asset company had to look elsewhere for profits, analysts said.

"A lot of Banc One's future is in credit cards; it's big business for them," said Fred Cummings, a McDonald & Co. analyst in Cleveland. "They're not growing as aggressively as in recent quarters. They're just de- emphasizing the business as are other issuers."

Credit card and merchant processing fees were down 46% from a year ago to $35.8 million. Mr. Cummings said he'll continue to monitor credit quality at Banc One, but described the company's strategy of slowing down growth of its credit card business as conservative.

Banc One took a loan loss provision of $171.2 million, nearly doubling the $92.6 million provision taken a year ago.

Net interest income grew 18% over a year ago to $1.2 billion, while interest expense rose only 0.88%. The acquisition of Premier Bancorp in Louisiana in the first quarter helped the net interest margin expand 26 basis points from a year ago to 5.55%, Mr. Cummings said.

Noninterest income grew 17.4% to $533.3 million, propelled by fees on deposits, mortgage banking income and small, but burgeoning, businesses, such as insurance, securities brokerage and investment banking. While revenue grew compared to the same period a year ago, it was essentially flat compared with the first quarter of '96.

At Wells, return on equity fell from a stellar 28.34% in the first quarter to a week 9.77%. Return on assets also dropped, from 2.16% to 1.35%.

"Wells is the only major bank I know that has reported a number less than what I was looking for," said Mr. Berry.

But Wells plays down the importance of the reported earnings. Instead, it urges investors to focus on so-called cash earnings-per-share, which are earnings before amortization of goodwill and other intangible assets.

Wells maintains that cash flow earnings is economically more important than reported earnings, because they measure the generation of cash that can be used to buy back stock and to invest in the business.

Analysts' generally agree that the cash flow figure is more important. And, in cash flow, Wells beat Wall Street expectations, with per share earnings of $4.89 per share, compared to consensus expectations of $4.79.

Analysts said the reported earnings were unexpectedly low because goodwill and related charges were an unexpectedly high at $163 million.

Analysts also noted some positive developments: even though net interest margins fell 15 basis points in the quarter to 6.03%, they were still higher than many had expected. Analysts also noted that the merger reduced Wells credit card loan-loss ratio from 8.25% in the first quarter to 6.95%.

Carole S. Berger, with Salomon Brothers Inc. in New York, said the reason for the decline was that First Interstate's credit card portfolio was cleaner than Wells. She added that Wells officials told her that losses in Wells' old portfolio peaked in the second quarter, and should decline in the future.

Mellon's net interest income of $374 million was down 3.5% from the year-ago quarter. The company said two securitizations - $950 million in credit card loans in November and $650 million in home equity loans - contributed to the downturn in interest income. Loans declined 1% at Mellon.

Dean Witter analyst Anthony Davis said low loan demand, the securitizations and a less-aggressive marketing of credit cards led to the shortfall in loan growth.

However, fee income rose 17% from a year-ago at Mellon to $474 million. Institutional trust fees and mutual fund management fueled the increase.

While Mellon's mutual fund subsidiary, The Dreyfus Corp., and its institutional trust business are showing signs of momentum, analysts noted that Mellon's banking unit is sluggish at best.

"The challenge is to go re-engineer the banking business," said Mr. Davis, noting that Mellon lags behind other banks in such areas as alternative delivery of products.

But Alex. Brown analyst George Bicher said Mellon's mix of trust and mutual fund businesses are making up for weak loan demand in western Pennsylvania. "It's sluggish loan growth," Mr. Bicher said. "It's very difficult for a regional bank to separate itself from the local economy."

Mellon tried to increase its loan growth two years ago with its nationally marketed CornerStone credit card, but that product resulted in much higher losses than the company anticipated, and forced it to take writedowns at yearend 1995.

This article was written by Jacqueline S. Gold based on reporting from James R. Kraus, Brett Chase, and Barton Crockett. +++

Citicorp New York Dollar amounts in millions (except per share) Second Quarter 2Q96 2Q95 Net income $952.0 $853.0 Per share 1.86 1.57 ROA 1.43% 1.25% ROE 19.30% 18.10% Net interest margin 5.25% 4.80% Net interest income 3,351.0 2,973.0 Noninterest income 2,265.0 2,221.0 Noninterest expense 2,978.0 2,798.0 Loss provision 479.0 493.0 Net chargeoffs 429.0 431.0 Year to Date 1996 1995 Net income $1,866.0 $1,682.0 Per share 3.61 3.09 ROA 1.40% 1.25% ROE 19.00% 18.40% Net interest margin NA NA Net interest income 6,614.0 5,774.0 Noninterest income 4,408.0 4,339.0 Noninterest expense 5,838.0 5,491.0 Loss provision 973.0 884.0 Net chargeoffs 873.0 724.0 Balance Sheet 6/30/96 6/30/95 Assets $266,824.0 $256,994.0 Deposits 175,783.0 163,122.0 Loans 167,873.0 158,187.0 Reserve/nonp. loans 139.10% 122.10% Nonperf. loans/loans 2.30% 2.70% Nonperf. assets/assets 1.90% 2.40% Nonperf. assets/loans + OREO 3.00% 3.80% Leverage cap. ratio NA NA Tier 1 cap. ratio 8.40%* 8.40% Tier 1+2 cap. ratio 12.30%* 12.40%


Mellon Bank Corp. Pittsburgh Dollar amounts in millions (except per share) Second Quarter 2Q96 2Q95 Net income $179.0 $172.0 Per share 1.26 1.09 ROA 1.70% 1.75% ROE 20.40% 17.50% Net interest margin 4.30% 4.69% Net interest income 372.0 385.0 Noninterest income 474.0 406.0 Noninterest expense 540.0 500.0 Loss provision 25.0 20.0 Net chargeoffs 26.0 46.0 Year to Date 1996 1995 Net income $358.0 $342.0 Per share 2.50 2.16 ROA 1.73% 1.76% ROE 20.00% 17.50% Net interest margin 4.32% 4.75% Net interest income 735.0 774.0 Noninterest income 978.0 804.0 Noninterest expense 1,100.0 995.0 Loss provision 50.0 40.0 Net chargeoffs 54.0 72.0 Balance Sheet 6/30/96 6/30/95 Assets $42,769.0 $40,016.0 Deposits 31,704.0 26,807.0 Loans 27,356.0 27,765.0 Reserve/nonp. loans 359% 293% Nonperf. loans/loans 0.47% 0.72% Nonperf. assets/assets 0.47% 0.68% Nonperf. assets/loans + OREO 0.74% 0.99% Leverage cap. ratio 7.20% 8.30% Tier 1 cap. ratio 7.50% 9.00% Tier 1+2 cap. ratio 11.90% 12.30%

Banc One Corp. Columbus, Ohio Dollar amounts in millions (except per share) Second Quarter 2Q96 2Q95 Net income $354.9 $307.5 Per share 0.80 0.70 ROA 1.50% 1.43% ROE 17.07% 16.03% Net interest margin 5.66% 5.29% Net interest income 1,198.0 1,003.5 Noninterest income 533.3 454.1 Noninterest expense 1,028.4 902.3 Loss provision 171.2 92.6 Net chargeoffs 150.6 86.4 Year to Date 1996 1995 Net income $700.8 $610.0 Per share 1.57 1.38 ROA 1.48% 1.42% ROE 16.59% 16.16% Net interest margin 5.66% 5.32% Net interest income 2,393.0 2,013.1 Noninterest income 1,035.9 905.9 Noninterest expense 2,047.5 1,825.9 Loss provision 333.6 159.1 Net chargeoffs 305.3 160.8 Balance Sheet 6/30/96 6/30/95 Assets $97,051.1 $86,783.3 Deposits 70,954.1 65,612.9 Loans 69,601.5 62,443.4 Reserve/nonp. loans 264.6% 249.1% Nonperf. loans/loans 0.55% 0.57% Nonperf. assets/assets 0.47% 0.50% Nonperf. assets/loans + OREO 0.65% 0.68% Leverage cap. ratio 8.43%* 8.72% Tier 1 cap. ratio 9.58%* 10.36% Tier 1+2 cap. ratio 13.29%* 13.76%


Wells Fargo & Co. San Francisco Dollar amounts in millions (except per share) Second Quarter 2Q96 2Q95 Net income $363.0 $232.0 Per share 3.61 4.51 ROA 1.35% 1.81% ROE 9.77% 26.71% Net interest margin 6.03% 5.66% Net interest income 1,304.0 659.0 Noninterest income 639.0 310.0 Noninterest expense 1,277.0 560.0 Loss provision 0.0 0.0 Net chargeoffs 178.0 70.0 Year to Date 1996 1995 Net income $627.0 $465.0 Per share 8.39 8.92 ROA 1.60% 1.80% ROE 13.52% 26.80% Net interest margin 6.08% 5.63% Net interest income 1,304.0 659.0 Noninterest income 993.0 551.0 Noninterest expense 1,844.0 1.096.0 Loss provision 0.0 0.0 Net chargeoffs 291.0 135.0 Balance Sheet 6/30/96 6/30/95 Assets $108,586.0 $50,931.0 Deposits 83,868.0 38,784.0 Loans 70,541.0 33,896.0 Reserve/nonp. loans 306.30% 302.30% Nonperf. loans/loans 1.10% 1.90% Nonperf. assets/assets 0.90% 1.70% Nonperf. assets/loans + OREO 1.40% 2.60% Leverage cap. ratio 6.35% 6.69% Tier 1 cap. ratio 7.45% 8.60% Tier 1+2 cap. ratio 11.20% 12.48%

Chase Manhattan Corp. New York Dollar amounts in millions (except per share) Second Quarter 2Q96 2Q95 Net income $856.0 $729.0 Per share 1.80 1.54 ROA 1.08% 0.95% ROE 18.70% 16.30% Net interest margin 3.18% 3.39% Net interest income 2,023.0 2,028.0 Noninterest income 1,931.0 1,726.0 Noninterest expense 2,324.0 2,359.0 Loss provision 250.0 195.0 Net chargeoffs 250.0 222.0 Year to Date 1996 1995 Net income $1,807.0 $1,368.0 Per share 2.93 2.89 ROA 0.49% 0.91% ROE 7.47% 15.50% (common) Net interest margin 3.31% 3.44% Net interest income 4,189.0 4,055.0 Noninterest income 3,800.0 3,283.0 Noninterest expense 6,417.0 4,694.0 Loss provision 495.0 380.0 Net chargeoffs 597.0 429.0 Balance Sheet 6/30/96 6/30//95 Assets $321,761.0 $297,183.0 Deposits 168,343.0 163,171.0 Loans 151,274.0 149,503.0 Reserve/nonp. loans 246.46% 206.33% Nonperf. loans/loans 0.99% 1.25% Nonperf. assets/assets 0.51% 0.68% Nonperf. assets/loans + OREO 1.08% 1.34% Leverage cap. ratio 6.60% 6.40% Tier 1 cap. ratio 8.00%* 7.90% Tier 1+2 cap. ratio 11.90%* 12.00%

*Estimated ===

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