Chase Manhattan Corp. reported a 53% jump in second-quarter profits on Monday, offering additional evidence of a turnaround in the fortunes of the banking industry.
The New York-based bank company, the nation's sixth largest, said it earned $233 million between April 1 and June 30, its most profitable quarter in 4 1/2
Chase, like many U.S. banks reporting in the past week, attributed the pins to improved asset quality and strong trading profits.
Credit Quality |Best' News
Nonperforming assets fell $485 million during the first quarter while the bank's provision for possible credit losses was slimmed to $225 million from $295 million in the first quarter and $360 million in the year-earlier period.
"The earnings were quite good, and the single best piece of news was the credit quality," said Diane Glossman, an analyst at Salomon Brothers Inc. Net income, which translated to 83 cents a share, slightly bettered analysts' consensus estimate of 81 cents, according to Zacks Investment Research Co., Chicago.
Several analysts boosted their estimates following release of the earnings. Rafael Soifer, of Brown Brothers Harriman & Co., doubled his 1993 earnings estimate to $340 million from $170 million and boosted his 1994 projection to $930 million from $800 million.
In afternoon trading Monday, Chase's stock rose 25 cents to $32.75 a share.
Trading Results Improved
E. Michel Kruse, Chase's chief financial officer, said $54 million of the bank's total trading profits of $187 million came from derivatives trading and $35 million from trading developing country debt.
Overall trading results rose 7% from the first quarter and 87% from the second quarter of 1992.
Analysts said Chase's trading results the rest of the year are unlikely to match the record second quarter, but noted that the company has made significant progress in a historically weak area.
However, they agreed with Ms. Glossman that Chase's apparent mastery over its drawnout loan problems was the most significant aspect of the company's report.
Chase's nonperforming real estate loans dropped 10.7%, or $114 million, during the quarter to $947 million. The company separately sold $109 million from its "held for sale" realty portfolio, which dropped to $884 million on June 30. Chase also booked a $26 million gain from repayment of assets in the portfolio.
The company, however, lowered the carrying value of the assets in its "held for sale" portfolio to 37% of original loan value from 45% last quarter.
|Pattern of Migration'
"We are seeing a reduction in the drain on our earnings from real estate problems," Mr. Kruse said Monday at a briefing on the earnings report. But he cautioned that the "pattern of migration" of loans from performing to nonperforming status, though slowing, is still "significant."
Foreclosures rose $25 million during the quarter to $763 million, Chase said.
Mr. Kruse separately noted that Chase may be close to selling its Arizona bank subsidiary, an asset that it has long been eager to shed.
|In Preliminary Talks'
"We're in preliminary talks with a number of parties, which has given us a sense" of the sale price, Mr. Kruse said in explaining an unspecified charge taken to reflect a writedown of the Arizona bank.
The company's net interest margin fell 84 basis points since March 30 to 4.10% -- a pattern that Mr. Kruse said he expects to continue for the rest of the year.
Fee revenues from trust and fiduciary activities rose 9% to $111 million over the same period last year.
Chase booked a one-time pretax gain during the quarter of $32 million from intended and completed business restructurings and sales. It offset some of the gain with a $34 million charge from writedowns of mortgage servicing assets, reflecting a sharp increase in prepayments related to mortgage refinancing.
NORTHERN TRUST CORP.
The Chicago-based company said its profits jumped 12% from the year-earlier second quarter to $41.6 million. But profitability, as measured by return on assets, suffered a mild decline as net interest margin narrowed.
Its annualized return on assets of 1.06% eased from 1.07% in the first quarter and 1.11% a year ago.
Credit quality improved sharply, as Northern's nonperforming assets fell 20% to $65 million, or a slender 0.88% o gross loans.
Northern's trust assets under administration rose 18% to $448 billion since June 30, 1992.
The company's stock fell $1 to $41 a share in afternoon trading Monday.Chase Manhattan Corp.New York Dollar amounts in millions (except per share) Second Quarter 2Q93 2Q92Net income $233.0 $152.0Per share 1.20 0.83ROA 0.93% 0.61%ROE 15.0% 10.9%Net interest margin 4.1% 4.03%Net interest income 902.0 878.0Noninterest income 693.0 593.0Noninterest expense 995.0 945.0Loss provision 225.0 295.0Net chargeoffs 222.0 297.0 Year to Date 1993 1992Net Income $386.0 $293.0Per share 1.95 1.64ROA 0.78% 0.59%ROE 12.20% 10.80%Net interest margin 4.52% 3.98%Net interest income 1,958.0 1,739.0Noninterest income 1,352.0 1,168.0Noninterest expense 2,296.0 1,892.0Loss provision 585.0 595.0Net chargeoffs 442.0 591.0 Balance Sheet 6/30/93 6/30/92Assets $99,085.0 $97,428.0Deposits 68,608.0 67,297.0Loans 61,236.0 64,705.0Reserve/nonp. loans 82.0% 44.0%Nonperf. loans/loans 3.83% 6.90%Nonperf. asset/asset 2.32% 4.49%Leverage cap. ratio 7.67% 6.05%Tier 1 cap. ratio 7.74% 6.06%Tier 1+2 cap. ratio 12.10% 10.59%