Citi Loses $885 Million And Suspends Dividend
Citicorp Tuesday reported a loss of $885 million in the third quarter - a figure that would have topped $1 billion if not for a reevaluation of its venture-capital portfolio.
The nation's largest banking company also said it suspended the dividend on its common stock and accelerated its cost-cutting and restructuring plans by setting aside $750 million for charges and reserves.
Citicorp's stock fell 0.875 cents, to close at $12.75 a share, on a day when bank stocks in general soared on expectations of interest-rate easing and relatively strong earnings at many companies.
The Citicorp announcement overshadowed some strong performances at other northeastern banks.
Chemical Banking Corp. said its third-quarter earnings skyrocketed to $131.6 million, or $1.22 a share, compared with a loss of $43.7 million in the year-earlier quarter. The gain was boosted by unexpectedly robust trading profits.
Chemical's stock price rose $1.75, to $26.125 a share.
Manufacturers Hanover Corp., Chemical's merger partner, reported a profit of $77 million in the quarter, flat with the year-earlier period. The company's shares rose $1.875, to $29.25.
And First Fidelity Bancorp., New Jersey's largest banking company, saw nonperforming assets decline for the first time in two years. It said third-quarter earnings rose 6% from the year-earlier period, to $55.3 million. The company's shares rose $1.625, to $32.875.
Citicorp attributed its loss to sluggish revenues and an aggressive decision to cut costs and recognize bad loans beyond previously announced limits. The loss drove Citicorp's Tier 1 capital ratio to 3.64%, below the 1992 minimum guideline. In addition to suspending its 25-cent-per share common dividend, the company took record third-quarter charges of $930 million for restructuring several of its businesses, paying severance costs, and covering future writeoffs. A part of that effort, it put aside $896 million to cover loan losses in the quarter, or $180 million above writeoffs.
"Our expectation is that revenue growth will be lower than we planned, so additional cost cutting is required," chairman John S. Reed said in a statement. The company had previously announced plans to cut $1.5 billion of costs by the end of 1992. To meet that goal, it now says, overhead must be cut to compensate for lower-than-expected retained earnings.
Citicorp's loss - its biggest since July 1987 - would have been even greater had the company not recorded a $122 million gain on venture capital investments. It said the gain derived from a change to market-value accounting, not from any unusual sales in its portfolio. Despite the losses, many analysts were encouraged by the company's moves.
"It was a cleanup quarter and a setup quarter," said Frank DeSantis, an analyst at Donaldson, Lufkin & Jenrette Inc. "If you look at why they lost money, much of it was noncredit-related."
Citicorp set up a $320 million reserve for employee severance and business closing costs. The total indicates that it will continue aggressive trimming of its work force of about 90,000 people. Citicorp has dismissed 5,000 employees this year as part of a previously announced plan to eliminate 8,000 jobs.
The company also took a $430 million charge to reflect a restructuring of its information systems sector. The business largely consists of its Quotron stock-quote subsidiary, which has not earned a profit since it was bought in 1986.
Analysts said the writedown indicated that Quotron will soon go on the block, a move that Mr. Reed once vowed would never occur. The company confirmed that Quotron is not a core business and could be sold at the right price.
Judah Kraushaar, an analyst at Merrill Lynch & Co. expressed concern that no special reserve was taken for the company's multibillion-dollar commercial real estate problems. He nevertheless upgraded his rating on Citicorp to "buy," from "above average," noting the company's aggressive cost cutting.
CHEMICAL BANKING CORP.
Profits at Chemical rose 40% from its second quarter and more than 100% from the year-earlier period, outpacing the expectations of most analysts.
They also applauded the nation's sixth-largest bank company for its control over bad credits. Chemical recorded a 1.8% decline in nonperforming loans (excluding Third World debt), to $1.9 billion. It also showed strength by adding $145 million to its loan-loss provision, $10 million than in either of the previous two quarters.
Nonperforming assets, however, rose by 5.2%, to $2.1 billion, at Chemical's New York and New Jersey subsidiaries, reflecting accelerating foreclosures on real estate loans.
Analysts are closely watching the credit-quality figures to gauge how serious a problem bad loans will be when Chemical combines with Manufacturers Hanover.
At Texas Commerce Bancshares, which Chemical bought in 1987 just as the Texas economy plunged, earnings reached $34.7 million, the unit's best quarter since 1984.
Chemical's bond trading profits, not its usual strong suit, soared to $77 million, from $10 million one year earlier. Total noninterest income rose 21%, to $407.3 million, from $337.1 million a year ago and $356.8 million in the previous quarter.
"It looked like a good quarter overall," said Mr. Kraushaar of Merrill Lynch.
The $77 million profit at Hanover, though exactly the same as a year ago, also impressed most analysts. As with Chemical, they were cheered by the company's apparently strong control over poor credits.
Hanover's nonperforming assets (excluding Third World debt) rose a moderate 5.8%, to almost $3 billion. Several analysts thought that category might have growth by as much as 10%.
"I'm pleasantly surprised," said David Berry, an analyst at Keefe Bruyette and Woods Inc. in New York.
The nation's ninth-largest banking company took a loan-loss provision of $168 million, matching the amount it set aside in the second quarter.
Trading account profits and commissions rose to $81 million, from $34 million a year ago, while noninterest expense fell 3%, to $486 million.
The upbeat picture, supplemented by a 3% decline in Third World problem loans, was marred by a 49% decline in loan syndication and corporate finance fees from the previous quarter, to $28 million. Total noninterest revenue fell a slight 2.5%, to $351 million, from the year-earlier period.
Third-quarter earnings also reflected a $12 million, after-tax gain from the sale of an office building in London.
Profits rose 34% at First Fidelity, to $55.3 million, excluding a one-time, $28 million gain in last year's third quarter.
"They did much better than I expected," said Michael Plodwick, an analyst for C.J. Lawrence Morgan Grenfell in New York. "And I was more optimistic than anyone."
Nonperforming assets fell 1%, to $971.9 million, from the second quarter, a sign that First Fidelity is making headway in clearing problem real estate loans that have plagued it since 1989.
Reflecting the pinched economic climate in the Northeast, business loans decreased from the second quarter by 5.3%, to $7.48 billion. The decline was offset by a 7% increase in mortgage loans, to $4.87 billion, reflecting the New Jersey company's increasingly strong consumer banking base.
Table : Citicorp New York
Dollar amounts in millions (except per share)Third Quarter 3Q91 3Q90Net income $(885.0) $221.0Per share (2.72) 0.56ROA (1.58%) 0.56%ROE (45.1%) 8.60%Net interest margin 3.89% 3.49%Net interest income 1,924.0 1,829.0Noninterest income 1,918.0 1,829.0Noninterest expense 3,374.0 2,728.0Loss provision 896.0 640.0Net chargeoffs 1,644.0 538.0YEAR TO DATE 1991 1990Net income $(324.0) $840.0Per share (1.36) 2.22ROA (0.20%) 0.48%ROE (7.40%) 11.60%Net interest margin 3.77% 3.52%Net interest income 5,521.0 5,423.0Noninterest income 5,423.0 5,347.0Noninterest expense 8,442.0 7,894.0Loss provision 2,737.0 1,683.0Net chargeoffs 3,972.0 2,291.0Balance Sheet 9/30/91 9/30/90Assets $224,060 $227,700Deposit 145,724.0 147,627.0Loans 152,021.0 159,268.0Reserve/nonp.loans NA NANonperf.loans/loans NA NANonperf.asset/asset NA NALeverage Cap. Ratio 3.81% 3.76%Tier 1 Cap. Ratio 3.64% 3.42%Tier 1+2 Cap. Ratio 7.28% 6.84%
Table : Chemical Banking Corp.
Dollar amounts in millions (except per share)THIRD QUARTER 3Q91 3Q90Net income $131.60 $(43.70)Per share 1.2 (0.69)ROA 0.90% NMROE 14.36% NMNet interest margin 3.65% 3.09%Net interest income 597.10 535.10Noninterest income 407.30 337.10Noninterest expense 695.00 634.00Loss provision 145.00 250.00Net chargeoffs 139.60 99.40YEAR TO DATE 1991 1990Net income $312.60 $221.10Per share 2.78 1.83ROA 0.56% 0.38%ROE 11.27% 7.23%Net interest margin 3.60% 3.10%Net interest income 1,740.60 1,572.40Noninterest income 1,080.80 1,120.80Noninterest expense 2,034.20 1,957.90Loss provision 415.00 402.00Net chargeoffs 566.10 503.50BALANCE SHEET 9/30/91 9/30/90Assets $73,729.0 $74,444.0Deposits 51,349.0 50,252.0Loans 43,201.0 43,176.0Reserve/nonp.loans 71.60% 82.60%Nonperf.loans/loans 6.00% 6.30%Nonperf.asset/asset 4.65% 4.27%Leverage Cap. Ratio NA NATier 1 Cap. Ratio NA NATier 1+2 Cap. Ratio NA NA
Table : MANUFACTURERS HANOVER
Dollar amounts in millions (except per share)THIRD QUARTER 3Q91 3Q90Net income $77.0 $77.0Per share 0.77 0.89ROA 0.49% 0.45%ROE 7.77% 8.52%Net interest margin 3.01% 2.41%Net interest income 425.0 381.0Noninterest income 351.0 360.0Noninterest expense 486.0 501.0Loss provision 168.0 115.0Net chargeoffs 203.0 96.0YEAR TO DATE 1991 1990Net income $230.0 $206.0Per share 2.41 2.41ROA 0.48% 0.42%ROE 8.25% 7.71%Net interest margin 2.84% 2.50%Net interest income 1,226.0 1,139.0Noninterest income 1,074.0 1,015.0Noninterest expense 1,500.0 1,562.0Loss provision 480.0 271.0Net chargeoffs 782.0 982.0BALANCE SHEET 9/30/91 9/30/90Assets $65,639.0 $66,002.0Deposits 40,614.0 41,913.0Loans 38,997.0 40,473.0Reserve/nonp.loans 66.70% 77.50%Nonperf.loans/loans 7.0% 6.3%Nonperf.asset/asset 4.90% 4.30%Leverage Cap. Ratio 6.20% 5.60%Tier 1 Cap. Ratio 7.00% 6.50 %Tier 1+2 Cap. Ratio 10.20% 9.90%
Table : FIRST FIDELITY BANCORP.
Dollar amounts in millions (except per share)THIRD QUARTER 3Q91 3Q90Net income $55.3 $70.1Per share 0.83 1.14ROA 0.76% 0.94%ROE 13.17% 19.35%Net interest margin 4.29% 3.85%Net interest income 285.2 264.3Noninterest income 86.8 118.7Net chargeoffs 68.6 56.3YEAR TO DATE 1991 1990Net income $163.4 ($59.2)Per share 2.52 (1.17)ROA 0.76% (0.26%)ROE 13.81% (5.16%)Net interest margin 4.15% 3.87%Net interest income 821.1 797.1Noninterest income 289.9 276.6Noninterest expense 648.0 677.6Loss provision 219.0 435.0Net chargeoffs 205.9 275.3BALANCE SHEET 9/30/91 9/30/90Assets $28,903.1 $29,339.1Deposits 24,383.6 23,016.1Loans 17,562.8 18,629.6Reserve/nonp.loans 78.0% 76.0%Nonperf.loans/loans 4.44% 3.89%Nonperf.asset/asset 3.36% 3.08%Leverage Cap. Ratio 5.13% 4.15%Tier 1 Cap. Ratio 7.24% 5.69%Tier 1+2 Cap. Ratio 11.04% 9.67%