Chase Manhattan Corp., enriched by equity investments and gains in capital markets activities, reported a 48% jump in profits for the fourth quarter, to $1.7 billion, handily beating Wall Street forecasts.
Like several other U.S. banking companies that released results earlier this week, Chase got a boost from unexpectedly strong deal-making, trading, and other market-related activities during the last part of 1999.
Profits at Chase were lifted by a fivefold gain in private equity investments, to $1.3 billion. Earnings of $1.97 a share soundly beat the $1.32 forecast by Wall Street analysts.
Results reported Wednesday by other U.S. banks also highlighted the effects of the buoyant stock market on bank revenues for the quarter. Big gains in fee income from market-related activities helped mask big one-time charges and illustrated how far some banks have reached to reduce their reliance on traditional, and slower-growing, banking activities.
FleetBoston Financial Corp. said it had a $34 million loss for the quarter, compared with profits of $622 million in the same period in 1998, because of a $760 million merger charge in the most recent period. Without the charge, income rose 17% over last year, to $726 million, on gains in investment banking, private equity, and asset management, the company said.
Wachovia Corp. said profits rose 9% over the fourth quarter of 1998, to $262.9 million. The Winston-Salem, N.C., banking company reported double- and triple-digit increases in fee revenues from investment management and capital markets - two businesses it has built by acquisition.
KeyCorp in Cleveland, which eked out a 1.5% gain in net income to $264 million because of one-time charges, also reported double-digit revenue increases in asset management, brokerage, and investment banking activities.
"Some of the banks have engineered their way around the negative elements by diversifying," said George Bicher, an analyst at Deutsche Bank Alex. Brown. "The lesson is diversify and prosper."
Chase Manhattan Corp.
Net income for the full year 1999 rose 44%, to $5.4 billion. Chase, with $406 billion of assets, said it would repurchase $5 billion of its shares.
Profits were largely driven by a 46% rise in revenues from corporate and investment banking activities, to $3.2 billion. Investment banking fees rose 31%, to $499 million, reflecting an increase in syndicated finance and mergers and acquisitions advisory activities, the company said. Total trading revenues fell 8%, to $633 million.
Income from Chase H&Q - the new equity underwriting and research unit created in Chase's December acquisition of San Francisco-based Hambrecht & Quist - was $371 million during the quarter, more than double the average amount reported in each of the previous four quarters, according to Dina Dublon, Chase's chief financial officer.
Still, private equity gains were the star of Wednesday's meeting with analysts and investors. "This is not a one-time event," Ms. Dublon said. "We are creating value for the long term."
Analysts said there is a healthy amount of skepticism in the market over Chase's reliance on private equity, which tends to be more volatile than other businesses.
Revenues from global services - which includes corporate trust and custody - rose 7%, to $812 million. Revenues from consumer operations rose 2%, to $2.5 billion, driven by a 21% gain in mortgage banking services, to $341 million.
Expenses rose 12%, to $3.2 billion. Chase took a $75 million charge in connection with a previously announced relocation of some New York metropolitan area employees to sites in Florida and Texas, and another $100 million charge for an ongoing restructuring of asset management and other businesses. The relocations aim to reduce annual operating costs by $80 million by the beginning of 2001. The restructuring aims at annual cost savings of $130 million by 2003.
Chase shares rose $2.75 to $73.75 in late trading.
FleetBoston Financial Corp.
Earnings per share of 76 cents beat the consensus by a penny. For the full year, profits excluding the charges rose 14%, to $2.5 billion.
FleetBoston, with $190.7 billion of assets, represents the November combination of Fleet Financial Group and BankBoston Corp. The company said it had double-digit revenue growth across a broad variety of businesses, including brokerage, asset management, capital markets, and credit cards. Fee income in the fourth quarter rose 30% over last year, to $1.9 billion.
Revenues from capital markets more than doubled, to $708 million. Revenues from venture capital gains more than doubled, to $245 million; revenues from the company's San Francisco-based investment bank, Robertson Stephens Inc., also more than doubled, to $340 million.
Income from investment services - fueled by New York-based brokerage affiliate Quick & Reilly - rose 22%, to $405 million. Credit card revenues rose 36%, to $196 million.
Eugene McQuade, vice chairman and chief financial officer, said the company was on target with its merger goals. About $100 million of the $600 million in targeted annual cost savings has been accomplished, he said. "We have pulled together both companies ahead of schedule," Mr. McQuade said.
FleetBoston shares fell 75 cents to $31.125.
Excluding charges, earnings per share of $1.30 met expectations. For the year, profits rose 16%, to just over $1 billion.
The company used acquisitions to expand its capital markets and wealth management offerings during the year, buying Interstate/Johnson Lane Inc. in April and Offitbank Holdings Inc. in September. Fee income for the quarter rose 38%, to $439 million, led by a fivefold jump in investment fees, to $79 million, and a 36% rise in capital markets income, to $49 million. Interest income rose 3%, to $628 million.
Wachovia's reserves for potential losses continued to catch the eye of analysts. The company's allowance for losses fell to 1.12% of total loans during the quarter, from 1.16% in the third quarter. "I believe they have a good feel for the risk in their portfolio, but it is something I am mindful of," said David C. Stumpf, an analyst with A.G. Edwards & Sons Inc. in St. Louis. "I doubt seriously we are going to see that reserve number go any lower."
Wachovia officials told investors during a conference call on Wednesday that they feel comfortable with Wall Street's $5.49 earnings per share estimate for 2000.
"We have been building this company for some time now, and we are now seeing some of the benefits of our work," said L.M. Baker Jr., chairman and chief executive officer. "Our lines of business are quite strong, and we think our performance will be good."
Wachovia's stock fell 50 cents, to$65.875 in late trading.
Earnings per share of 59 cents beat analyst expectations by a penny, though the bank had warned of profit weakness last year. For the full year, profits rose 11%, to $1.1 billion.
The $80 billion-asset banking company took a $194 million charge for restructuring in the quarter, offset by an equal gain from the sale of branches in Long Island, N.Y. In November, KeyCorp said the restructuring and layoffs were an effort to check expense growth. The bank also recently agreed to divest its credit card business, though that decision did not affect its 1999 results.
Excluding special charges, the company's non-interest expenses rose 9%, to $678 million in the fourth quarter. Its net noninterest expenses rose 22 percent, to $3 billion for the full year. The company blamed the rise on higher computer processing costs and higher salaries at its McDonald & Co. investment bank.
Fee income growth of 20%, however, outpaced expense growth. Fee income was $430 million in the quarter, driven by a 39% gain in investment banking revenues, to $111 million, a 30% gain in brokerage income, to $39 million, and a 20% gain in trust and asset management revenues, to $115 million.
The company lowered earnings expectations for this year when it spoke to analysts in its quarterly conference call after the announcement. Officials - who excluded individual investors and the press from the call - said the company expects to earn between $2.36 and $2.45 a share this year. That's down from $2.60 cents the company stated earlier.
The company will take hit of 5 cents to 10 cents a share in each of two areas - the divestiture of its credit card portfolio and a decision to stop securitizing leases for its Champion home mortgage subsidiary. KeyCorp shares fell 50 cents, to $20.625.
Washington Mutual Inc.
Washington Mutual Inc. late Tuesday posted fourth-quarter earnings of $450 million, almost triple the results from the year-earlier period. Earnings per share of 82 cents fell 2 cents short of the analysts' consensus.
Results in the fourth quarter of 1998 were stifled by a $472 million pretax charge related to the acquisition of H.F. Ahmanson & Co.
Much of the shortfall in earnings per share for the 1999 fourth quarter was attributed to an unexpected increase in borrowing costs near the end of 1999. This led to an after-tax increase in interest expense of $22 million, or 4 cents a share, the bank said.
"They were hit by a bit of a curveball that will not recur for at least another thousand years," said R. Jay Tejera, an analyst with Ragen MacKenzie Inc. in Seattle. "Overall, Washington Mutual had a very solid quarter and is building tremendous operating momentum."
Rising interest rates put a dent in net interest income, which fell 16%, to $1.06 billion.
However, an increase in fee-generating checking accounts coupled with insurance and securities commissions boosted fee income 32%, to $423 million. Checking accounts at the end of the fourth quarter increased by 388,000, to over 4 million accounts. Banking fees rose 34%, to $220 million. Fees and commissions from insurance and securities activities totaled $83.2 million in the fourth quarter, up 35% from the year-earlier period.
Originations of commercial, consumer, and residential construction loans represented 16% of the thrift's total originations, compared with 13% a year ago.
Shares in the thrift fell 93.75 cents, to$23.5625 in late trading.
Profits at Birmingham, Ala.-based SouthTrust Corp. rose 17%, to $115.9 million, or 69 cents a share. The results matched analysts' expectations. For the full year 1999, profits rose 20%, to $443.2 million.
The $43.3 billion-asset banking company said its efficiency ratio declined 3% during 1999, to 55.39%. "The results of concentrated efforts are seen in the improved efficiency ratio and return on equity," said Wallace D. Malone Jr., chairman and chief executive.
Unlike many banking companies that met earnings estimates on the strength of fee-based income, SouthTrust made its money this quarter on interest earnings. Gains in interest income were double the growth in noninterest income and represented more than 75% of the entire company's earnings.
"SouthTrust is still as traditional a commercial bank as they come," said Christopher Marinac, an analyst with Robinson-Humphrey Co. "They are in a part of the country with good loan growth and good demographics, and they are making good money off of traditional banking."
Shares of SouthTrust shares fell 87.5 cents, to $31.375.
Summit, a $36 billion-asset company based in Princeton, N.J., said net income fell 6%, to $109 million in the quarter, because of a $28 million charge for a previously announced restructuring. Excluding the charge, earnings per share of 73 cents beat the consensus by 2 cents.
Profits for the year also fell 5%, to $442.6 million, as a result of the charge. Without the charge, profits rose 8.5%.
Fee income during the quarter rose 9%, to $96 million. Net interest income rose 11%, to $330.9 million, and the net interest margin contracted to 3.92%, from 4.05%.
Summit shares were unchanged at $30 in late trading.
Liz Moyer, Louis Whiteman, Andrew Ward, and Olaf de Senerpont Domis contributed to this report.