Earnings at Chase Manhattan Corp. and Citicorp suffered from a restructuring charge and the Asian downturn, respectively, while Wells Fargo & Co. showed signs that its recent difficulties are receding.
Chase, for now the largest U.S. banking company, said Tuesday that first-quarter net income fell 22%, to $725 million. The company took a previously announced $510 million charge tied to reorganizations.
Citicorp, which recently announced plans to merge with Travelers Group to form the largest financial services holding company, said its profits grew 7%, to $1.1 billion. The company said healthy corporate banking revenue offset poor results in Asia.
The news was almost all positive for Wells Fargo and its West Coast competitor, Washington Mutual Inc. Wamu's earnings soared 43%, to $257 million, on across-the-board improvements in loan and fee-based businesses.
Even though Wells was down 7% from last year's first quarter, to $315 million, the San Francisco company was ahead of analysts' estimates by a solid 17 cents.
The bank is seen as having finally escaped the deposit run-off and integration problems that followed its April 1996 acquisition of First Interstate Bancorp. "They have put the systems issues and customer disruption behind them," said Joseph K. Morford, an analyst with Van Kasper & Co.
In other major earnings reports Tuesday, Banc One Corp. posted a 36% gain, to $518 million; Mellon Bank Corp. a 13% increase, to $206 million; and Wachovia Corp. a slight 1% rise, to $195 million.
Wachovia was affected by merger-related charges but its operating earnings per share of $1.04 were in line with consensus estimates.
"We've got to get this merger stuff behind us, but we feel real good about the way we ended up," said Robert S. McCoy Jr., Wachovia chief financial officer.
Chase Manhattan Corp.
At $366 billion-asset Chase, earnings per share of $1.59 fell 67 cents short of the analysts' consensus of $2.26. Without the restructuring charge, earnings per share of $2.35 would have beaten the projection by 9 cents.
Walter V. Shipley, chairman and chief executive officer of the New York bank, cited "growing trading, investment banking, equity-related, and global services revenues, as well as solid performance across the national consumer franchise."
Chase said its restructuring moves should yield $460 million in annual cost savings. The company is cutting 4,500 jobs and investing in growth businesses like capital markets and asset management.
Noninterest revenue grew 18%, to $2.5 billion.
Chase said corporate banking results were driven by market-related gains as well as improved performance in its investment banking activities. Investment banking fees doubled to $361 million; trading revenues gained 23%, to $713 million; and revenues from equity-related investments grew 75%, to $287 million.
Nonperforming assets in Asia rose $161 million in the quarter, to $243 million. Credit costs from the region were $92 million. But Chase also reduced its exposure in Korea, Thailand, and Indonesia by 26%, to $7.5 billion.
On the consumer side, credit card revenues jumped 16%, to $931 million. The bank attributed the rise to cobranding successes and its December acquisition of Bank of New York Co.'s portfolio.
Citicorp
Earnings per share of $2.23 were a penny better than analysts' estimates.
Noninterest revenues grew 16% from a year earlier, to $2.8 billion.
Corporate banking was driven by market-related gains, said $330 billion-asset Citicorp. Revenues from foreign exchange trading jumped 63%, to $384 million, while revenues from derivatives activities jumped 17%, to $231 million. Fixed-income trading declined 21%, to $63 million.
The results in corporate banking included $58 million in credit costs from exposure in Thailand and Indonesia, the New York-based bank said.
Asian economic turmoil hit retail businesses. Revenues from consumer banking in emerging markets fell 8%, to $869 million, reflecting adverse currency conversions.
Revenues from credit cards slipped 3%, to $1.7 billion, also dampened by emerging markets. Still, chairman and chief executive officer John Reed told the shareholders' meeting Tuesday that the bank has "looked into opportunities to expand" in Asia, including the possibility of bank acquisitions there.
Banc One Corp.
At $114 billion-asset Banc One, earnings per share of 79 cents met Wall Street analysts' estimates.
Non-interest income rose 41%, to $1.1 billion, mostly due to profits on loan servicing. Credit cards accounted for $492 million in noninterest income, a 71% gain from the first quarter last year.
The Columbus, Ohio, company said it opened 2 million new card accounts in the first quarter.
Service charges on deposit accounts rose 11%, to $184 million. Banc One also realized gains in investment management, insurance, securities brokerage, and investment banking.
Net interest income rose 3%, to $1.3 billion. Excluding commercial and residential real estate loans, which Banc One exited in late 1996, average loans were up 13%, to $101 billion. Average outstanding consumer and credit card loans each jumped 15% from a year ago, while outstandings on commercial loans increased 9%.
Keefe, Bruyette & Woods Inc. analyst Joseph Duwan said Banc One was one of the few companies to show revenue momentum in both loans and fee-based businesses.
"We are extremely pleased with all aspects of our broad-based earnings performance for the first quarter," said John B. McCoy, chairman and chief executive officer. Banc One, which agreed to acquire First Chicago NBD Corp. last week, has a "solid start for the remainder of 1998," he said.
Wells Fargo & Co.
The first-quarter earnings decline was attributed to a decision to get out of the home mortgage business. Wells stopped originating the loans in 1995, citing intense competition and thinning margins, and "we have basically been letting our portfolio of single-family mortgages run out," said Cynthia A. Koehn, Wells' manager of investor relations.
Deposits were about unchanged in the three months ending March 31, at $72.3 billion, but "that is the first indicator that they are starting to win customers back," said James R. Bradshaw of Pacific Crest Securities, Portland, Ore.
Even though Wells did well versus analysts' expectations, it "has disappointed in the past, so there is a lot of uncertainty about how the bank will perform," he said. "They still have a ways to go, but they are making good progress."
Core revenue grew slightly better than 5%, stemming from growth in the commercial and small-business areas. "The underlying fundamentals continue to improve over the quarter," Mr. Morford said.
Wells Fargo's first-quarter numbers will not have much effect on the its status as a takeover target. "There will continue to be speculation about a sale," Mr. Morford added.
But the bank bettered its noninterest income by 12%, to $726 million, mostly due to loan sales, credit card fees, and lower losses on the sale of offices and equipment stemming from the First Interstate merger, the bank said.
"There is a palpable sense of optimism and enthusiasm for the growth that we have been watching for and are now seeing," Ms. Koehn said.
Washington Mutual Inc.
Washington Mutual beat analysts' estimates by 2 cents, at $1.02 per share.
The $103.1 billion-asset thrift company was helped by an improved efficiency ratio, or expenses as a percentage of revenues, which dropped to 47% from 57% a year earlier.
"We are just beginning to realize increased efficiencies resulting from the Great Western merger, and look forward to further improvement as systems are converted to the Washington Mutual platform during the second quarter," said chairman, president, and chief executive officer Kerry Killinger. The Great Western integration is scheduled to be completed by June 30.
Analysts said they expect even greater improvements in efficiency once H.F. Ahmanson & Co. is folded in. Washington Mutual, agreed to acquire the $52.5 billion-asset thrift last month.
"Ahmanson is larger and has a much better-managed infrastructure than Great Western, so the conversion will be much more of a cost-cruncher," said R. Jay Tejera, an analyst with Dain Rauscher in Minneapolis. He predicted Washington Mutual's efficiency ratio would drop below 40% in 1999, becoming "the model other institutions try to achieve."
Loan originations ballooned 54%, to a record $8.6 billion, because of low interest rates, strong economies, and general franchise growth. Contributing to the increase, Wamu said, was a 73% jump in single-family mortgages, to $6.9 billion.
The company added more than 118,000 checking accounts during the first quarter.
"Their loan production machine is moving into full gear," said Thomas O'Donnell, an analyst with Salomon Smith Barney in New York. "In the meantime, Washington Mutual is boosting checking accounts, which lowers the cost of funds and drives fee income."
Wamu's fee income climbed 12%, to $92 million, while net interest income increased 8%, to $713 million.
Wachovia Corp.
Expansion into Virginia hurt income growth for Winston-Salem, N.C.-based Wachovia.
Because of $35.6 million in merger-related expenses, the net of $195.3 million was barely 1% higher than in the first quarter of 1997.
Operating earnings growth was solid, however. Operating net income of $218.2 million was up 13%.
Wachovia executives pointed to strong fee income growth in capital markets, trust, and deposit accounts. Overall, fee-based income made up almost half of a 16% increase in first-quarter revenue.
Net interest income grew $62.9 million, or 12%. Loans totaled $43.7 million at the end of the quarter.
The merger charges included costs for system conversions and signage changes completed in Virginia in late March, following the acquisitions of Richmond-based Central Fidelity Banks and Charlottesville-based Jefferson Bankshares. They also take into account costs associated with the company's purchase of 1st United Bancorp in Florida.
Darren R. Short, an analyst with Robinson-Humphrey Co., said Wachovia's operating gains were "very positive" in light of the effort involved in integrating the acquisitions.
A downside was increased net loan losses, related to continuing credit card woes. Net loan losses totaled $74.1 million, an annualized 0.68% of average loans, compared with $62.2 million, or 0.65%, in the 1997 quarter.
Mellon Bank Corp.
Pittsburgh-based Mellon, with assets of $47.4 billion, derived 66% of its total revenue from fee-based businesses.
Noninterest income jumped 30%, to $698 million. Trust and investment fees accounted for $386 million of revenue, a 45% gain. That business includes mutual funds and asset management as well as institutional trust.
Net interest income declined 2%, to $367 million, and the net interest margin narrowed from 4.37% a year ago to 4.06 in the first quarter.
"Fee revenues continue to increase due to the success they've had in the mutual fund and processing industries," said Gerard Cassidy, an analyst with Tucker Anthony Inc. in Portland, Ore. "There was downward pressure on the net interest margin, but because of the strategic decision five years ago to move more investment into the fee revenue businesses, it did not have an adverse effect on this quarter."
The decrease in net interest income was attributable to funding costs related to stock repurchase, the fourth-quarter movement of credit card loans into an accelerated resolution portfolio and preferred stock redemptions, the company said. Average loans increased 7% to $29.4 billion.
Operating expenses grew 23% to $716 million. Factoring out extraordinary items, including acquisitions, expenses grew 4%, the company said.
- Reported by Brett Chase, Olaf de Senerpont Domis, Carey Gillam, and Liz Moyer +++
Wells Fargo & Co. Inc. San Francisco Dollar amounts in millions (except per share) First Quarter 1Q98 1Q97 Net income $315.0 $339.0 Per share 3.58 3.58 ROA 1.34% 1.31% ROE 10.07% 10.02% Net interest margin 6.01% 6.14% Net interest income 1,130.0 1,216.0 Noninterest income 726.0 640.0 Noninterest expense 1,092.0 1,117.0 Loss provision 180.0 105.0 Net chargeoffs 178.0 201.0 Balance Sheet 3/31/98 3/31/97 Assets $94,820.0 $101,863.0 Deposits 72,316.0 76,427.0 Loans 64,504.0 65,436.0 Reserve/nonp. loans 357.42% 293.44% Nonperf. loans/loans 0.80% 1.00% Nonperf. assets/assets 0.71% 0.85% Nonperf. assets/loans + OREO 1.04% 1.32% Leverage cap. ratio 7.05%* 6.60% Tier 1 cap. ratio 7.75%* 7.80% Tier 1+2 cap. ratio 11.60%* 12.05%
* Estimated
Washington Mutual Inc. Seattle, Wash. Dollar amounts in millions (except per share) First Quarter 1Q98 1Q97 Net income $256.5 $179.8 Per share 1.02 0.71 ROA 1.04% 0.83% ROE 19.17% 14.37% Net interest margin 2.96% 3.08% Net interest income 712.9 659.5 Noninterest income 193.8 188.3 Noninterest expense 442.2 495.1 Loss provision 45.3 53.8 Net chargeoffs (42.6) (53.3) Balance Sheet 3/31/98 3/31/97 Assets $103,123.9 $96,981.1 Deposits 51,313.1 50,986.0 Loans 68,802.0 67,140.2 Reserve/nonp. loans 111.46% 100.98% Nonperf. loans/loans 0.88% 0.99% Nonperf. assets/assets 0.78% 0.94% Nonperf. assets/loans + OREO 1.16% 1.25% Leverage cap. ratio NA NA Tier 1 cap. ratio NA NA Tier 1+2 cap. ratio NA NA
Wachovia Corp. Winston-Salem, N.C. Dollar amounts in millions (except per share) First Quarter 1Q98 1Q97 Net income $195.3 $193.5 Per share 0.93 0.95 ROA 1.24% 1.37% ROE 15.29% 17.28% Net interest margin 4.21% 4.13% Net interest income 580.9 518.0 Noninterest income 286.9 228.4 Noninterest expense 494.2 388.6 Loss provision 74.1 62.2 Net chargeoffs 74.1 62.2 Balance Sheet 3/31/98 3/31/97 Assets $65,125.0 $58,060.0 Deposits 39,857.0 36,849.0 Loans 44,498.0 39,383.0 Reserve/nonp. loans 447.48% 544.10% Nonperf. loans/loans 1.22% 1.32% Nonperf. assets/assets 0.23% 0.22% Nonperf. assets/loans + OREO 0.33% 0.33% Leverage cap. ratio NA NA Tier 1 cap. ratio 8.80%* 9.80% Tier 1+2 cap. ratio 11.60%* 13.40%
* Estimated
Mellon Bank Corp. Pittsburgh, Pa. Dollar amounts in millions (except per share) First Quarter 1Q98 1Q97 Net income $206.0 $182.0 Per share 0.78 0.69 ROA 1.89% 1.83% ROE 21.60% 21.20% Net interest margin 4.04% 4.34% Net interest income 365.0 370.0 Noninterest income 698.0 536.0 Noninterest expense 697.0 565.0 Loss provision 15.0 25.0 Net chargeoffs 18.0 32.0 Balance Sheet 3/31/98 3/31/97 Assets $47,414.0 $42,068.0 Deposits 33,096.0 29,966.0 Loans 30,343.0 27,525.0 Reserve/nonp. loans 349% 545% Nonperf. loans/loans 0.47% 0.35% Nonperf. assets/assets 0.40% 0.40% Nonperf. assets/loans + OREO 0.63% 0.62% Leverage cap. ratio 7.00% 8.75% Tier 1 cap. ratio 6.80% 8.74% Tier 1+2 cap. ratio 11.20% 13.65%
Banc One Corp. Columbus, Ohio Dollar amounts in millions (except per share) First Quarter 1Q98 1Q97 Net income $517.6 $381.9 Per share 0.79 0.58 ROA 1.84% 1.40% ROE 20.75% 16.30% Net interest margin 5.36% 5.53% Net interest income 1,320.9 1,357.8 Noninterest income 1,137.1 807.2 Noninterest expense 1,493.0 1,309.0 Loss provision 202.8 271.9 Net chargeoffs 224.4 247.3 Balance Sheet 3/31/98 3/31/97 Assets $116,320.9 $111,837.0 Deposits 77,916.3 73,942.8 Loans 78,970.4 77,828.6 Reserve/nonp. loans 252.14% 326.68% Nonperf. loans/loans 0.64% 0.47% Nonperf. assets/assets 0.51% 0.39% Nonperf. assets/loans + OREO 0.74% 0.55% Leverage cap. ratio 8.26% 8.27% Tier 1 cap. ratio 8.74% 9.43% Tier 1+2 cap. ratio 13.57% 13.45%
Chase Manhattan Corp. New York Dollar amounts in millions (except per share) First Quarter 1Q98 1Q97 Net income $725.0 $927.0 Per share 1.59 1.97 ROA 0.78% 1.11% ROE 13.35% 17.78% Net interest margin 2.92% 3.12% Net interest income 2,164.0 2,068.0 Noninterest income 2,465.0 2,082.0 Noninterest expense 2,614.0 2,417.0 Loss provision 344.0 220.0 Net chargeoffs 344.0 220.0 Balance Sheet 3/31/98 3/31/97 Assets $365,715.0 $340,338.0 Deposits 196,096.0 176,030.0 Loans 167,944.0 155,882.0 Reserve/nonp. loans 311% 356% Nonperf. loans/loans 0.71% 0.66% Nonperf. assets/assets 0.37% 0.33% Nonperf. assets/loans + OREO 0.81% 0.74% Leverage cap. ratio 6.00% 6.90% Tier 1 cap. ratio 8.00%* 8.40% Tier 1+2 cap. ratio 11.80%* 12.00%
* Estimate
Citicorp New York Dollar amounts in millions (except per share) First Quarter 1Q98 1Q97 Net income $1,065.0 $995.0 Per share 2.23 2.01 ROA 1.38% 1.41% ROCE 21.70% 20.80% Net interest margin 4.85% 5.23% Net interest income 3,496.0 3,449.0 Noninterest income 2,766.0 2,392.0 Noninterest expense 3,394.0 3,169.0 Loss provision 507.0 423.0 Net chargeoffs 482.0 398.0 Balance Sheet 3/31/98 3/31/97 Assets $330,414.0 $290,354.0 Deposits 214,719.0 188,848.0 Loans 188,600.0 172,471.0 Reserve/nonp. loans 187.30% 189.20% Nonperf. loans/loans 1.60% 1.80% Nonperf. assets/assets 1.20% 1.50% Nonperf. assets/loans + OREO 2.00% 2.40% Leverage cap. ratio NA 7.40% Tier 1 cap. ratio 8.20%* 8.40% Tier 1+2 cap. ratio 12.10%* 12.10%
* Estimated ===
