Chase Manhattan Corp., under heavy pressure to boost its performance, reported an 8.5% drop in second-quarter earnings as core revenues declined.
The nation's sixth-largest banking company reported net income of $281 million, as a surge in trading revenues was more than offset by falling interest income and other factors.
"We're happy to see a strong trading quarter, but this points up a sluggishness in core revenues that continues," remarked Raphael Soifer, a banking analyst with Brown Brothers Harriman & Co. in New York.
The lackluster report follows criticism of the banking giant from institutional investors who acquired a significant stake earlier this year.
Chase's stock price fell by more than 3%, to $50.63 a share, after the earnings announcement. The decline was more than double the 1.2% fall of Standard & Poor's bank stock index.
Analysts said they were surprised at the extent of the comeback in trading revenues - to $207 million from $181 million a year earlier and $94 million in the first quarter.
But they said they did not expect any significant improvement in earnings until next year, after Chase has completed a major cost-cutting study geared to help reduce annual expenses by $400 million.
David Berry, a bank analyst with Keefe, Bruyette & Woods Inc. predicted that even if Chase's latest results "were nothing earth shaking," earnings will probably rise after Chase completes its review at the end of this year.
"We're going to get some fairly decent return in the next two years," Mr. Berry said. Earnings per share, he added, will probably climb from a conservative estimate of $5.50 this year to as much as $8 next year.
At least part of the reason for the drop in earnings on a year to year basis was a one-time aftertax gain of $36 million from the sale of Chase Arizona in the second quarter of 1994.
Net interest revenues also declined 4% from a year earlier, to $888 million, as net interest margins declined to 3.51% from 3.83%, while loan loss provisions fell 50% to $75 million. Meanwhile, operating costs remained virtually flat.
Analysts hailed Chase's efforts to keep a lid on expenses. They noted that excluding a $15 million restructuring charge in the quarter to shut down the bank's futures brokerage unit, noninterest expenses came in a $1.09 billion, or close to the $1.07 billion in expenses for the same period a year earlier. Head count at the company also fell by 1,515, to 33,535 employees.
"This shows the company continued its historic ability to control costs when it so chooses," remarked Diane Glossman, a banking analyst at Salomon Brothers Inc.
She agreed with others that Chase has yet to demonstrate prospects for a significant boost in revenues but also noted that "management continues to articulate a strategy that includes both wholesale and retail aspects and believe they have a viable revenue growth proposition."
Among other major banks in the Northeast, earnings at National Westminster Bancorp, the $31 billion-asset U.S. unit of London-based National Westminster PLC, fell 17% to $63 million - even though pretax net income increased 38%, to $115.1 million.
The decline came after the bank exhausted deferred tax benefits for losses in previous years. Net interest revenues rose 8% to $256.4 million and noninterest income rose nearly 58%, to $124.6 million. The bank's efficiency ratio, or ratio of operating expenses to revenues, also improved significantly, falling to 58.8% from 63.8% over the first half this year.
Earlier, Princeton, N.J.-based UJB Financial Corp. reported a 41% rise in second-quarter earnings, to $40.3 million, and a 38.5% rise in earnings per common share to 72 cents.
The sharp improvement in earnings boosted the $15.4 billion-asset bank's return on assets to 1.07% from 0.78% and its return on common equity to 14.16% compared with 10.98% a year ago. +++ Chase Manhattan Corp. New York Dollar amounts in millions (except per share) Second Quarter 2Q95 2Q94 Net income $281.0 $307.0 Per share 1.38 1.46 ROA 0.88% 1.03% ROE 14.20% 16.10% Net interest margin 3.51% 3.83% Net interest income 888.0 924.0 Noninterest income 750.0 800.0 Noninterest expense 1,104.0 1,073.0 Loss provision 75.0 150.0 Net chargeoffs 77.0 146.0 Year to Date 1995 1994 Net income $541.0 $671.0 Per share 2.67 3.27 ROA 0.87% 1.15% ROE 13.8% 18.1% Net interest margin 3.53% 3.92% Net interest income 1,779.0 1,882.0 Noninterest income 1,422.0 1,655.0 Noninterest expense 2,182.0 2,131.0 Loss provision 140.0 310.0 Net chargeoffs 139.0 302.0 Balance Sheet 6/30/95 6/30//94 Assets $118,756.0 $114,495 Deposits 68,282.0 68,908.0 Loans 64,239.0 60,482.0 Reserve/nonp. loans 226% 166% Nonperf. loans/loans 1.0% 1.4% Nonperf. assets/assets 0.7% 1.3% Nonperf. assets/loans + OREO NA NA% Leverage cap. ratio 7.19% 7.47% Tier 1 cap. ratio 8.22% 8.71% Tier 1+2 cap. ratio 12.99% 13.32% ===