An American Banker Roundup
International exposure and trading losses pushed third-quarter earnings at Chase Manhattan Corp. down 15%, to $837 million, the company said Tuesday.
With strong results in other businesses offsetting the problems, the $356.5 billion-asset company reported earnings per share of 94 cents-17 cents above analysts' expectations.
Meanwhile, two of the nation's big regional banks posted double-digit increases.
Helped by a tight rein on expenses and a boost in ATM fees, Wells Fargo & Co., which is poised to merge with Minneapolis-based Norwest Corp. next month, said it earned $347 million, a 20% gain.
And Mellon Bank Corp. credited its investment management and trust businesses for a 14% rise in net income, to $218 million.
"It's a pretty basic equation: You have rough quarters ahead for banks with emerging markets exposure, and banks that don't have that exposure generally have been doing quite well," said James R. Bradshaw, an analyst with Pacific Crest Securities, Portland, Ore.
Eric Rothmann of Stephens Inc. agreed. "Regional banks and selective players can earn through the number of problems the industry has had," he said.
Chase Manhattan Corp.
Results at Chase reflected heavy trading losses and a slow-down in corporate banking activities.
Executives said diversification enabled the company to escape the quarter with fewer burn marks than banks with similar international exposure.
"Our results are very strong compared to other institutions with wholesale operations," said Dina Dublon, executive vice president and corporate treasurer. "We have been able to differentiate ourselves by showing the benefits of diversity."
The nation's biggest banking companies generally have been reeling from the market downturn. Yesterday, J.P. Morgan & Co. reported a 61% drop in third-quarter profits. Bankers Trust Corp. and Citigroup, due to report this week, are also expected to post declines.
Total revenues at Chase, at $4.4 billion, were flat over last year. Noninterest revenues slipped 6%, to $2.2 billion.
Global corporate banking revenues fell 20%, to $1.89 billion. Trading revenues were down 60%, to $259 million, largely because of a loss of $146 million from bond trading. Venture capital revenue-typically a big contributor to Chase's profits-plummeted 76%, to $60 million.
The declines were partially offset by a $261 million gain on the sale of investment securities, the bank said.
"They were able to ring a fence around the problems pretty well," said Diane Glossman, an analyst at Lehman Brothers.
Indeed, investment banking fees rose 5%, to $322 million. Chase said strong loan syndication and merger and acquisition advisory activities counteracted slower underwriting in high-yield and emerging markets securities.
Chase said its credit exposure to hedge funds totaled $2.7 billion, all but $300 million of which was secured. The provision for credit losses increased to $455 million from $190 million in the same period last year.
On the consumer side, revenues climbed 11%, to $2.05 billion. Credit card revenues jumped 36%, to $381 million, and revenues from card member services grew 16%, to $979 million, reflecting the addition of a portfolio acquired from Bank of New York Co. earlier this year. Mortgage origination fees skyrocketed 184%, to $105 million.
Chase's securities processing, custody, and technology services gained 11%, to $666 million.
Expenses declined 1%, to $2.6 billion. Ms. Dublon said the bank responded to turbulent markets by lowering incentive compensation.
Wells Fargo & Co.
A combination of cost reductions and gains in fee income helped $93 billion-asset Wells earn $3.99 per share, topping analysts' consensus estimates by 6 cents.
The San Francisco bank showed signs that it had overcome the problems in integrating First Interstate Bancorp in 1996. That had caused major depositor defections.
"The key here is the deposit base, and investors will be pleased to see that it has stabilized," said R. Jay Tejera, an analyst with Dain Rauscher in Minneapolis. "When the merger comes together, integration will be that much easier if Norwest doesn't have to deal with those issues."
Norwest shareholders approved the deal Tuesday, while Wells shareholders were expected to do so late in the day.
Noninterest income gained 9%, to $737 million. Mutual fund and annuity sales fees climbed 22%, to $22 million.
"There has been a lot of trading volume from retail customers because people are redefining their investment portfolios," said Mr. Bradshaw, the Pacific Crest analyst. "That translates into commissions."
Fees derived from Wells Fargo's 4,400 ATMs were up 16%, to $50 million, and service charges on deposit accounts rose 10%, to $235 million.
Wells Fargo also continued to improve its efficiency ratio-expenses as a percentage of net interest and noninterest income. The ratio declined to 50.9%, from 52.6% in the year-earlier quarter.
Mellon Bank Corp.
At $48.2 billion-asset Mellon, earnings per share of 82 cents met analysts' estimates.
"While volatile markets remain a concern for all financial institutions, Mellon's stability was demonstrated by our excellent risk management and financial results," said Frank V. Cahouet, Mellon's chairman and chief executive officer.
Fee-based businesses accounted for 66% of Mellon's total revenues. Investment management, including mutual fund subsidiaries Dreyfus Corp. and Founders Asset Management, and institutional trust businesses were the biggest contributors. Noninterest income was up 12% to $712 million.
Net interest income at Mellon improved 2%, to $376 million. Operating expenses increased 10%, to $734 million, because of acquisitions, business growth and higher amortization of mortgage servicing assets, the company said. Expenses decreased 0.5% from the second quarter, however.
Mellon's provision for credit losses was $15 million in the third quarter, compared with $25 million in the same period a year ago.
Mellon also announced that it would take an after-tax charge against earnings of $27 million in the first quarter of 1999 because of a change in accounting related to reporting requirement for fees paid to mutual funds.
The charge is related to underwriting fees associated with the introduction of a $920 million Dreyfus closed-end mutual fund. The company said the charge would not affect cash flow as the fees were paid earlier this year.