Two top U.S. banks have reported sharply contrasting fourth-quarter earnings, with Citicorp's profits up 74% to $1 billion while J.P. Morgan's fell 51% to $193 million.
The sharp increase in earnings at Citicorp came mainly from the bank's global consumer business, an ongoing improvement in real estate lending, equity investments and global finance operations, according to Citicorp chairman John Reed.
At Morgan, results were battered by a 75% drop in fourth-quarter trading revenues as well as declines in corporate finance revenues, credit-related fees and other noninterest revenues. Net interest revenues rose 9% to $518 million, but failed to offset the plunge in trading income. Trading revenues also slumped sharply at Citicorp to $214 million, down 73% from the third quarter and down almost 50% from the fourth quarter last year.
Total net income for all of 1994 rose 54.5% at Citicorp to $3.4 billion, after a 61% fall in trading revenues to $731 million, a 16% rise in net interest revenues and a 3% increase in operating expenses.
Earnings for the year fell 29% at Morgan to $1.2 billion, after a 12% rise in net interest revenues and a 21.4% decline in noninterest revenues.
"Overall, Citicorp had a good report card," said Jim McDermott, president of Keefe, Bruyette & Woods Inc. "Morgan didn't."
Morgan, which earlier announced it would post a material decline in earnings as a result of a downturn in trading revenues, did manage to post results higher than were expected. The bank announced 96 cents a share in fourth-quarter income compared with the 60-odd cents a share many analysts had predicted. Citicorp's earnings were broadly in line with analysts' forecasts.
However, bank analysts did take issue with Citicorp's decision to include some $230 million of tax benefits in its fourth quarter earnings.
Excluding the tax benefits, which were not considered operational earnings that can be used to measure performance, but including $39 million from venture capital, net income per share would have been $1.58 rather than $1.95, noted Raphael Soifer, a bank analyst with Brown Brothers Harriman.
Citicorp released its earnings ahead of schedule after a fourfold rise in average daily trading of its shares on Wednesday.
The heavy trading followed a report by bank analyst George M. Salem of Gerard Klauer Mattison & Co. about the impact of the Mexican financial crisis on the bank's extensive Latin American franchise. Citicorp's share price fell $1.375 Wednesday to $40.375. On Thursday, the stock rose/fell tk to tk. Morgan's shares rose/fell tk to tk on its Thursday earnings announcement.
Analysts said ongoing turmoil in world capital markets, including a rise in interest rates, a fall in currency values, and declining stock and bond prices, have clouded the outlook for both Morgan and Citicorp.
They added that the shakeup made any near-term improvement in earnings at Morgan more remote and could also reduce growth in earnings at Citicorp, which has been showing hefty profits from banking in developing markets around the world.
"Morgan, clearly, is to a considerable extent a captive of the global capital markets which continued to be unfavorable," said Mr. Soifer, who cut his 1995 earnings estimate for Morgan to $6.50 from $7.50. "My concern, with respect to their Mexican business, is really the effect of the weak economy on their volume, asset quality and total banking business in the country but these effects typically take one or two quarters to develop."
Analysts also emphasized that Morgan has turned in reasonable earnings despite a difficult market and that Citicorp has extensive experience doing business in volatile economies.
"I think the concern (about Citicorp) is overdone," said Diane Glossman, a banking analyst with Salomon Brothers Inc. "It's certainly conceivable the company could experience credit pressures in a country that experiences economic difficulties, but that doesn't necessarily mean Citicorp can't get very good contributions from their local operations." +++ J.P. Morgan & Co., Inc. New York City Dollar amounts in millions (except per share) Fourth Quarter 4Q94 4Q93 Net income $193 $392 Per share .96 1.92 ROA .45% 1.05% ROE 8.11% 19.03% Net interest margin 1.59% 1.55% Net interest income $549 $507 Noninterest income 710 1,158 Noninterest expense 963 1,023 Loss provision - - Net chargeoffs (2) (6) Full Year 1994 1993 Net income $1,215 $1,586 Per share 6.02 7.80 ROA 0.70% 1.08% ROE - 20.86% Net interest margin 1.56% 1.51% Net interest income $2,101 $1,910 Noninterest income 3,536 4,499 Noninterest expense 3,692 3,580 Loss provision - - Net chargeoffs (27) (100) Balance Sheet 12/94 12/93 Assets $154,917 $133,888 Deposits 43,085 40,402 Loans 22,080 24,380 Reserve/nonp. loans 516.4% 410.3% Nonperf. loans/loans 1.0% 1.2% Nonperf. assets/assets 0.1% 0.2% Leverage cap. ratio 6.5% 7.3% Tier 1 cap. ratio 9.6% 9.3% Tier 1+2 cap. ratio 14.2% 13.0% Citicorp New York City Dollar amounts in millions (except per share) Fourth Quarter 4Q94 4Q93 Net income $1,042 $575 Per share 1.95 1.06 ROA 1.55% .98% ROE 24% 16.7% Net interest margin NA 4.48% Net interest income 2,322 2,007 Noninterest income 2,190 2,145 Noninterest expense 2,723 3,021 Loss provision 558 571 Net chargeoffs NA 435 Full Year 1994 1993 Net income $3,366 $2,219 Per share 6.29 4.11 ROA 1.29% 0.97% ROE 21.4% 17.7% Net interest margin NA 4.50% Net interest income 8,911 7,690 Noninterest income 7,837 8,385 Noninterest expense 10,256 10,615 Loss provision 1,881 2,600 Net chargeoffs NA 2,059 Balance Sheet 12/94 12/93 Assets NA $216,574 Deposits NA 145,089 Loans NA 138,967 Reserve/nonp. loans NA 68.7% Nonperf. loans/loans NA 4.6% Nonperf. assets/assets NA 4.8% Leverage cap. ratio 6.43% NA% Tier 1 cap. ratio 7.8% (est.) 6.62% Tier 1+2 cap. ratio 12.0% (est.) 11.45% ===