Chase Manhattan Corp. said Thursday that it suffered a pretax trading loss of $160 million in October, becoming the first money-center bank to reveal a big hit from the convulsions in global markets.
Chase, which has been investing in capital markets expertise at home and abroad, said the losses came from its Latin American operations and could keep the company from reaching its goal of 15% earnings-per-share growth for the year.
The disclosure by the nation's largest banking company underscored the industry's ever-increasing dependency on world markets.
"These banks are captive to the vicissitudes of what's happening in emerging markets," said James McDermott Jr., president of Keefe, Bruyette & Woods. "But it's a far cry from terminal illness."
Indeed, while some others banks acknowledged trading losses in October, they said the amounts were not material.
Chase's problems stemmed from its relatively large exposure to Latin American debt.
Peter Tobin, Chase's chief financial officer, cited "sharp reductions" in prices of emerging market securities and illiquid markets for certain securities Chase was trading in its Latin American offices.
Brady bonds, Eurobonds, Treasury securities, and floating rate notes were the culprits, he said.
He said the bank has now stopped the bleeding by reducing its exposure to such securities. "We believe it was a unique event," Mr. Tobin said.
Analysts, who had been buzzing earlier in the week about potential losses at Chase, said it was probably the only bank to take such a hit.
"We believe that the severity of this situation will prove to be specific to Chase rather than impacting each of the major dealer banks," said Diane B. Glossman, an analyst at Salomon Brothers.
Shares in Chase dipped but then recovered, closing at $107.312, up 56 cents. Shares in other money-center banks also rose. (See story on page 24.)
Other money-centers with substantial positions in emerging markets in Latin America and Southeast Asia said they had some losses during the month but nothing big enough to warrant disclosure to investors.
BankAmerica Corp.'s trading results for October were "positive but below" the bank's monthly average trading revenues of $70 million for 1997, according to Sharon Tucker, a spokeswoman for the company.
Bankers Trust New York Corp. spokesman William McBride said the company was "not planning to make any disclosures about interim trading results," adding that Bankers Trust's trading losses were not significant enough to specify.
"Anyone who's been trading has had losses in October," Mr. McBride said.
J.P. Morgan & Co. and Citicorp declined to discuss their results.
Mr. Tobin pinned the losses to the last week of October, when turmoil in Hong Kong markets spilled over to European, Latin American, and U.S. exchanges, causing sharp declines in stock prices.
The announcement Thursday was made in response to market expectations, Mr. Tobin said. "We had some information in the marketplace as to our goals, and we needed to highlight the risk to them," he said.
Trading has become an important activity for Chase. During the third quarter, trading revenues were $505 million, or 21% of total noninterest revenue, compared with $343 million, or 18% of noninterest revenue, in the third quarter of 1996.
Analysts said Chase could offset the losses later in the quarter through aggressive foreign exchange trading and risk management for corporate clients.
"You have to put this into perspective," said Thomas Hanley, an analyst at UBS Securities. "After the initial shock, they will have plenty of opportunities to offset the loss."
Still, the announcement, made in advance of Chase's quarterly filing with the Securities and Exchange Commission this week, was enough to make some Wall Street watchers revise their estimates.
Ms. Glossman said Thursday that she cut her 1997 estimate for Chase's operating earnings to $8.30 per share from $8.65.