Citigroup Inc. and J.P. Morgan & Co. said fourth-quarter profits soared four- and five-fold, respectively, and Bank of America Corp. said net income rose 64% on stronger-than-expected revenues from investment banking and other market-related activities.
The results for those three companies set the tone for the nine other U.S. banking companies that reported quarterly and yearend 1999 profits Tuesday. Most of the companies - at least those with capital markets, securities processing, or asset management businesses- disclosed net income that either met or, in some cases, far exceeded the expectations of Wall Street analysts.
Citigroup said its profits nearly quadrupled, to $2.62 billion, or 75 cents a share, beating the average estimate of analysts polled by First Call Corp. by a nickel. At J.P. Morgan, profits nearly quintupled, to $509 million or $2.63 a share, besting the analysts' consensus by 65 cents. Bank of America, based in Charlotte, N.C., reported a 64% gain in net income, to $1.9 billion or $1.23 per share, meeting the analysts' consensus.
In addition to a boost from capital markets activities, the largest U.S. banking companies also reported solid revenue growth in consumer banking operations and in fee-generating businesses such as asset management and securities processing. Many of the reports compared favorably to a fourth quarter of 1998 in which profits were dampened by one-time restructuring or merger-related charges.
Bank One Corp. in Chicago said profits rose 82%, to $411 million, compared with the preceding year's fourth quarter, which included a merger-related charge. At Wells Fargo & Co. in San Francisco, profits jumped 27%, to $970 million. U.S. Bancorp in Minneapolis said profits rose 6%, to $369 million. Bank of New York Co. said net income rose 4.5%, to $327 million.
Analysts also said credit quality remained stable.
"Most of the banks beat expectations with strong fee income growth,'' said Gerard Cassidy, an analyst at Tucker Anthony Cleary Gull in Portland, Maine. "This is still an economic environment in which banks are very profitable."
CitigroupProfits for the full year 1999 rose 70%, to $9.87 billion. Profits for the fourth quarter and full year 1998 were dampened by a $726 million merger-related charge.
Citigroup, the largest U.S. banking company with $718 billion of assets, said it had solid revenue gains from each of its major business lines. Total revenues grew 15%, to $15.3 billion, driven by a 49% gain in revenues from the company's Salomon Smith Barney unit, to $3.2 billion. Expenses fell 13% over the corresponding period last year, to $7.7 billion.
"With revenues twice the level of expenses, it is clear that our efficiency efforts are magnifying the impact of revenues gains on the bottom line," said John S. Reed and Sanford I. Weill, chairmen and co-chief executive officers, in a statement.
Salomon Smith Barney is on the rebound from a tumultuous fourth quarter in 1998. Investment banking revenues surged 53%, to $793 million, and investment management revenues jumped 30%, to $430 million. Revenues from trading more than doubled, to $1.16 billion.
Revenues from global relationship banking rose 7%, to $1 billion. In total, revenues for all corporate and investment banking activities at the company rose 19%, to $6.9 billion. Revenues from asset management also rose 19%, to $736 million, driven by cross selling efforts within the private bank and an overall 11% increase in assets under management, to $364 billion, the company said.
Global consumer operations also showed strength, the company said. Revenues from mortgage banking jumped 28%, to $196 million; revenues from branch banking in North America jumped 14%, to $557 million. Revenues from consumer finance operations rose 28%, to $441 million.
Citigroup shares fell 6.25 cents, to close at $57.9375.
Bank of AmericaThe $632.6 billion-asset company bank took a merger-related charge of $213 million in the fourth quarter of 1999. Results for the same period in 1998 included a $441 million charge.
For the year, profits rose 53%, to $7.88 billion.
Hugh L. McColl Jr., chairman and chief executive officer, called 1999 "a significant step in the right direction," adding that he was pleased with the work done to integrate NationsBank Corp.'s September 1998 acquisition of BankAmerica Corp.
Noninterest income grew 35% to $3.6 billion during the quarter, representing 44% of the company's overall revenues for the period. Bank of America reported a 96% gain in investment banking and trading income, to $886 million, compared to the fourth quarter last year.
Analysts said they were generally pleased with the performance. "It wasn't a breakout quarter, but it was certainly not a disappointment," said Melba A. Bartels, analyst with Ragen MacKenzie in Seattle. "They are showing good fundamental growth in loans and deposits, and strong trends in fee-based revenues."
Bank of America officials said they expect earnings per share to grow by at least 12% in 2000. But they also said they do not expect to make any large deals this year. James Hance Jr., chief financial officer, said during a conference call Tuesday that although the company has "very good capacity to handle an acquisition, we don't have much of an appetite." He said the company is focused on continuing to integrate the old BankAmerica Corp.
"We don't currently see any huge payback right now from a large deal," he said. "And frankly, we don't have the currency right now to do acquisitions."
Bank of America shares closed down $2.50 at $48.
J.P. Morgan & Co.Net income in the fourth quarter of 1998 included a $143 million restructuring charge. Morgan's profits for the full year 1999 were $2.05 billion, double profits for all of 1998.
Morgan, with $167.7 billion of assets, said revenues jumped 46% in the fourth quarter, to $2.19 billion, driven by double-digit revenue gains from investment banking and other client related activities. Meanwhile, expenses grew 2%, to $1.4 billion during the quarter. Without the charge in last year's quarter, expenses grew 14% because of higher compensation and bonus accruals. Core expenses in the fourth quarter, excluding compensation, fell 12% over the same period last year, the bank said.
Investment banking revenues rose 17%, to $309 million compared to last year's fourth quarter because of a strong pipeline for its mergers and acquisitions advisory business. Revenues from equity underwriting more than doubled, to $420 million. Revenues from venture capital investments rose more than seven-fold, to $313 million.
Morgan had a $127 million loss in proprietary trading activities compared to revenues of $203 million in the fourth quarter last year. The disparity was attributed to the sale of investment securities and "break-even results" in the company's Asian securities portfolio.
Revenues from asset management rose 21%, to $352 million.
Shares of Morgan fell $4.6875, to close at $123.3125.
Bank One Corp.Earnings per share, excluding charges, were 78 cents during the quarter, a penny shy of the estimate. For the full year, net income rose 12%, to $3.5 billion.
The $264 billion-asset company's results were muddied by $1.237 billion of charges taken in the fourth quarter of 1999 and $1.2 billion of merger-related and restructuring charges the bank took in the same period in 1998.
Still, analysts said the results were in line expectations, which have been lowered by profit warnings and executive shakeups at bank over the past three months. Bank officials tried again Tuesday to convince investors that the company's troubles are limited to its First USA credit card division. "Lines of business other than cards are performing and will continue to perform within their targets. This is a fact," said Chief Financial Officer Bob Rosholt in a prerecorded announcement for investors.
Fee income fell 14%, to $1.8 billion during the quarter but rose 8%, to $8.7 billion, for the full year. Mr. Rosholt said commercial loans grew 10% in the period. Consumer loans - excluding credit cards - grew 11%. And investment management fees were up 9%. The net interest margin shrank to 4.98% from 5.67% in the same period in 1998, mostly the result of problems at First USA, the bank said.
Bank One does not plan to release results for its individual business lines until next month, when it files its earnings with the Securities and Exchange Commission.
Shares of Bank One fell 68.75 cents, to close at $31.4375.
Wells Fargo & Co.The $218.1 billion-asset company had per share earnings of 58 cents, one penny short of estimates for the quarter. Results in the fourth quarter last year were dampened by a $194 million net loss after the company added $320 million to its loan loss provision because of losses in Island Finance, it's Puerto Rico-based consumer finance unit.
Fee income for the fourth quarter rose 33%, to just over $2 billion. The majority of the increase came from a non-cash venture capital gain of $560 million related to Wells Fargo's investment in Cerent Corp., a technology firm. In addition, revenues from insurance grew 20%, to $84 million, while trust and investment fees and commissions climbed 18%, to $324 million.
"They delivered exactly what they promised at the time of the merger, which is more than a lot of other merging banks can claim this year," said Joseph K. Morford, an analyst with Dain Rauscher Wessels in San Francisco.
Wells Fargo shares fell $2.8125, to close at $38.875.
U.S. BancorpThe $81.5 billion-asset company, which in December warned that higher funding costs and increased investments in technology would hamper its fourth quarter performance, earned 52 cents per share, one penny below analysts' consensus estimate. At the time of the warning, analysts had estimated the per share figure to be 59 cents.
Investment banking revenue soared 168% in the quarter, to $89 million, while trading account profits and commissions rose 63%, to $66 million. The two businesses boosted fee income more than 23%, to $764 million, compared to the year-earlier period.
As expected, expenses grew significantly. Before merger-related charges, the fourth-quarter figure totaled $843 million, a 20% increase over the year-earlier period. U.S. Bancorp attributed $80 million of the increase to growth in investment banking and brokerage activities; the balance of the expense increase was attributed to spending on sales and service training and technology.
While analysts feared a tightening of U.S. Bancorp's margins, it was not as dramatic as expected. The net interest margin was 4.80% at the end of the quarter, compared to 4.78% in the year-earlier period. "It held up better than we thought it would, which is evidence that commercial and consumer lending are not as dead as we all had feared," said R. Jay Tejera, an analyst with Ragen MacKenzie in Seattle.
Shares of US Bancorp fell 93.75 cents, to close at $22.125.
Bank Of New York Co.Profits of 44 cents per share beat Wall Street estimates by a penny.
Profits for the full year 1999 rose 46%, to $1.739 billion. The $74.6 billion-asset banking company said the results were boosted by double digit gains in fee income, which now make up 61% of the company's total revenues compared to 58% of total revenues at the end of 1998. During 1999, the company acquired Royal Bank of Scotland Trust Bank, which gave its custody and processing businesses a substantial presence in Europe. At the same time it shed its slower-growth commercial finance unit, BNY Financial Corp., to General Motors Acceptance Corp.
Fee revenues rose 15%, to $686 million. Fees from cash and securities processing rose 20.4%, to $406 million; fees from asset management rose 20.3%, to $65 million; fees from foreign exchange and other trading activities rose 10%, to $56 million. Expenses rose 12%, to $570 million.
Shares of Bank of New York fell $1.750, to close at $37.375.
State Street Corp.State Street Corp., a $60.9 billion-asset Boston banking company, said profits more than doubled, to $249 million, boosted by a gain from the sale of the company's remaining commercial banking operations during the quarter to Providence, R.I.-based Citizens Financial Corp., a unit of Royal Bank of Scotland.
Excluding one-time items, earnings per share of 73 cents met Wall Street's expectations.
Revenues from securities processing and investment management services - State Street's two main businesses - drove fourth quarter earnings higher. Processing fees rose 15%, to $310 million, compared to the corresponding period in 1998. Fees from investment management rose 31%, to $168 million. Expenses rose 12%, to $626 million.
State Street shares fell $2.5625, to close at $76.50.
Mellon Financial Corp.Pittsburgh-based Mellon Financial Corp. earned $240 million, or $0.47 a share, during the quarter, up 8% over the same period a year ago. The results matched analysts' expectations.
The $47 billion-asset banking company it spent 1999 focusing on its fee-based businesses, selling off credit card operations, a mortgage unit, and a processing unit. In a statement Martin G. McGuinn, chairman and chief executive officer, said "we are in a position to expand on our leadership positions in our high-growth, high-return businesses."
Fee income dipped 6%, to $752 million, because revenues from those divested businesses were not included. Fees from trust and investment management grew 15% in the quarter, to $454 million.
Joseph Duwan, an analyst at Keefe, Bruyette & Woods Inc., said "fee growth at the bank was still much stronger than expected and continues to be the company's revenue driver."
Mellon's stock fell $2.4375, to close at $31.9375.
Comerica Inc.Profits at Detroit-based Comerica Inc. rose 11%, to $176 million or $1.08 a share, in line with expectations. Profits for the full year 1999 also rose 11%, to $673 million.
The $37 billion asset bank's results were fueled by strong commercial loan growth, the company said. Net interest income grew 10% to $408 million, in the fourth quarter. Its net interest margin was six basis points higher in the final quarter of 1999 than in 1998 at 4.60%.
Fee income was $195 million for the quarter, up 16% from the corresponding period last year. Investment management fees rose 26%, to $65.3 million.
Shares of Comerica, fell $1 to close at $43.0625.
Northern Trust Corp.Northern Trust Corp. in Chicago said profits rose 16%, to $106 million or 46 cents a share, beating Wall Street expectations by a penny. For the full year, profits rose 14%, to $405 million.
"Trust fees continued to be the principal generator of our earnings in the quarter, reflecting continuing strong investment management performance and favorable equity markets," said chairman and chief executive officer Willam A. Osborn.
Indeed, trust fees grew 25% in the quarter, to $271 million, and made up 80% of the $28.7 billion-asset company's non-interest income. Net interest income grew 10%, to $148.2 million on growth in loans and non-interest bearing deposits, the company said.
Northern Trust's shares rose 68.75 cents , to close at $55.5625.
AmsouthAmsouth Bancorp. recorded a net loss of $62.6 million during the fourth quarter, the result of one-time merger-related and "loan impairment" charges taken late in 1999. Without the charges, earnings per share of 41 cents per share matched Wall Street expectations.
The Birmingham, Ala.-based company doubled its asset size during the quarter, to $43.4 billion, with the completion of its acquisition of Memphis, Tenn.-based First American Corp.
Charges during the quarter included $177.8 million charge related to the First American acquisition, and a $45.8 million charge related to losses in its loan portfolio. The company has ceased its operations lending to the troubled health care industry.
Fee revenues grew 10.3%, to $215.8 million.
Shares of Amsouth closed down 8.75 cents, to $17.25.
Liz Moyer, Louis Whiteman, Olaf de Senerpont Domis, and Andrew Ward contributed to this report