INVESTMENT PRODUCTS Banks Set the Pace As Funds Recover In the first quarter, a period that saw many mutual funds rebound from a dismal 1994, bank fund managers had even more to celebrate than their nonbank counterparts. Aided by conservative investing styles and limited exposure to foreign markets, bank-managed mutual funds outperformed their rivals in stock funds, taxable bond funds, and mixed-fund categories.
Huge graph this week. Page one and box on page 13
Most banks have "failed miserably" in their efforts to sell mutual funds, a top Dreyfus Corp. executive said in an interview last week.
Elie M. Genadry, president of Dreyfus' institutional services division, said last year's sharp drop in mutual fund sales at banks owed much to the industry's failure to develop a strong sales culture. He estimated that 1994 fund sales by banks fell 40% to 50% from 1993's levels.
Signet Banking Corp. has added an unusual disclosure to its mutual fund sales materials to address a conflict of interest that can arise when banks manage funds. In a revised prospectus issued last month, the Richmond, Va., regional banking company said its lending relationships will not be a factor in the selection of securities for its mutual fund portfolios.
As part of an advertising campaign produced by Wealth Management Network, banks will be able to choose from seven advertising themes - ranging from an education theme, where readers are informed about what a trust department does, to a "clarification" theme, where the ad tries to do away with the perception of trust departments as old-fashioned. Wealth Management is a four-year-old joint venture between two Richmond, Va., advertising organizations: SourceOne Consulting Group and Market Strategies Inc.
Check out the ad on 15
18530 CRA Revision Gets A Warm Reception WASHINGTON
In a rare show of unity, bankers, regulators, and community activists all expressed support for revised Community Reinvestment Act rules that the federal banking agencies approved on Wednesday. But the commentators parted ways on some specific issues.
H.F. Ahmanson & Co. and Great Western Financial Corp. have written blistering letters rebutting the ABA's claim that a 19-cent gap in what banks and thrifts pay for deposit insurance poses no immediate problems. In the middle of the war of words is Rep. Marge Roukema, R-N.J., of the House Banking Committee, who was chairwoman of a financial institutions subcommittee hearing where banking and thrift industry representatives faced off on the future of the Savings Association Insurance Fund.
Photo of Rep. Roukema
State regulators are objecting strenuously to banks' recent use of a century-old law, known as the 30-mile rule, that allows them to cross state lines. In approving interstate moves, they charge, Comptroller Eugene A. Ludwig has violated states' rights to control branching.
On the move graphic page 4
18494 REGIONAL BANKING Loan Growth Fuels Regionals' Earnings
A hefty rise in operating expenses, coupled with declines in trading revenues, pushed first-quarter earnings down 26%, to $255 million, at J.P. Morgan & Co.. Some southeastern banks - Wachovia Corp., First Union Corp., and Barnett Banks Inc. - reported significant profits gains in the quarter, helped by strong loan growth and robust fee income.
Citicorp and Chemical posted substantial increases in net income. Citicorp earned $829 million, up 36%, and Chemical reported income of $385 million, up 21%. Some analysts stressed that if Citicorp's extraordinary items, trading, and lower provisions were withheld, the bank's improvement would have been less than it appeared. At Bankers Trust, trading-related net interest revenues fell to $1 million from $177 million, and trading losses hit $78 million, compared with a $14 million gain last year.
See page 1 graphic
First Fidelity Bancorp. saw earnings rise a modest 3.7% to $112.9 million, but its return on equity was down 15 basis points due to slower than expected loan demand. PNC Bank Corp., Pittsburgh, suffered from interest rate sensitivity. Its first-quarter profits dropped 36% to $125.7 million. Midlantic Corp. credited a decrease in nonperforming assets and a more profitable mix of loans for its 13% first-quarter earnings gain. Profits reached $53 million, or 97 cents per share.
Loan growth and fee income helped lift NationsBank Corp.'s earnings in the first quarter, but they would have been flat if not for a $30 million reduction in its loan-loss provision. The Charlotte, N.C.-based company reported net income of $443 million, up by 6%, or $26 million. Meanwhile, the loss provision fell to $70 million - $13 million less than net chargeoffs.
18527 COMMUNITY BANKING Bank's Chase Deal Gets CRA Challenge
Inner City Press/Community on the Move, a citizens group, is accusing Community Bank System Inc. of DeWitt, N.Y., of not lending to low-income, moderate-income, and minority residents in the Rochester, Syracuse, and Binghamton areas. The group is challenging the company's effort to buy 15 branches from Chase Manhattan Corp.
Community bankers remain pessimistic about regulatory reform despite the change in control of Congress, a survey shows. The study, conducted by accounting firm Grant Thornton, shows that few bankers are confident that the government will take meaningful action on two of the three issues most important to them: regulatory relief and repeal of the tax exemption for credit unions.
Richard A. McNeece, chairman and chief executive of First National Bancorp, said that he will step down because of a lack of support from shareholders. Mr. McNeece, who arrived as president eight years ago and became chairman of the $3 billion-asset holding company in 1992, said he will leave June 30. "I need to be in an environment where I can be totally effective and have the support of all the shareholders and management," he said.
When Valley Commerce Bank opened in Phoenix recently, it became the first start-up in Arizona in 10 years. Capitalized at $5 million, Valley was organized by Joseph D. Reid, a Michigan banker with several new banks to his credit. Mr. Reid had never set foot in Phoenix until a year ago, when he concluded it was the country's best market for a new bank.
Photo of Reid on p. 6
18529 COMPLIANCE U.S. to Press Battle On Money Laundering
Effective Jan. 1, 1996, new wire transfer regulations will broaden federal regulatory attention to include monitoring of securities broker- dealers and other nonbanks that commonly deal in electronic money transfers rather than in cash. The new regulations add to indications that the government is submitting Wall Street to strict scrutiny in a renewed effort to fight money laundering and underlying criminal activities, writes David Meister, an associate with Rogers & Wells in New York.
State banking association members from Maryland, Delaware, and West Virginia recently listed what they see as the most burdensome federal regulations. Their top targets: Truth-in-Savings, Truth-in-Lending, the Home Mortgage Disclosure Act, and the Real Estate Settlement Procedures Act.
Richard C. Insley photo on page 7
18626 CREDIT UNIONS NCUA Bid to Limit Corporates' Powers
The National Credit Union Administration plans to limit the investment powers and toughen the capital standards of the industry's liquidity centers. The NCUA proposed that corporate credit unions be required to move toward a "matched book" portfolio, in which investments are funded with deposits of similar maturity.
Sen. Phil Gramm has introduced a bill that would expand the National Credit Union Administration board to five members from three. The measure would place another at-large director and a state regulator on the agency's board.
Berkshire Credit Union, Pittsfield, Mass., which had about $158,000 in assets, was shut down by Massachusetts regulators last month. So far, depositor claims against the National Credit Union Share Insurance Fund total $2.7 million. Agency sources said that since June, Martin Siegel, manager of the credit union and a prominent Pittsfield businessman, diverted Berkshire's deposits to an ice cream company he owned.
18235 CREDIT/DEBIT/ATMs Discover Cards Get More Segmentation
Dean Witter, Discover & Co. announced that it would introduce two new credit card products this year: one geared toward consumers who want low interest rates and a new version of its upscale Private Issue card.
Details of a Nynex Visa card offering from Chase Manhattan Corp. were released last week. The card comes with no annual fee and a 9.9% introductory interest rate for one year. Cardholders will be rewarded with a 1% rebate on general purchases. And if they use the Nynex calling card twice in a month, cardholders earn a 25% bonus on the points they've earned in a month.
Picture of NYNEX card, page 18
A military system with private-sector implications won the 1995 Outstanding Smart Card Application Award at the Cardtech/Securtech conference in Washington. Multi-Technology Automated Reader Card, or MARC, uses the capacity of computer chips to perform many tasks - from medical record keeping to library and food services.
Photo of Card on page 12
Hatim A. Tyabji, chief executive of Verifone Inc., has an unconventional but effective management style. Last year, the nation's top point of sale marketer reported $309 million of revenue with a 19% growth rate.
Bar chart and photo on page 12
18634 MORTGAGES Thrift Giants Rev Up For Fixed Mortgages
In a key strategy shift, some of the nation's biggest thrifts are preparing to actively market fixed-rate mortgages. For the last year, the thrifts have been cashing in on a consumer preference for adjustable-rate loans, long their specialty because the adjustable feature limits interest rate risk on loans held for investment.
GE Capital Mortgage Services, which has been on a shopping spree for servicing portfolios, made two big acquisitions. Their purchases consisted of a $6 billion servicing portfolio from AmSouth Bancorp. that was reportedly sold for $10 billion. Then Wachovia Corp. announced it was selling $9 billion in servicing to GE, a sale many insiders previously said would go to Chase Manhattan Bank.
Fannie Mae says the first quarter will prove to be the bottom of the mortgage market this year. David Berson, its chief economist, says that even though the economy is slowing, homebuying and mortgage lending will rally for the rest of the year. That's because fixed mortgage rates are falling, consumers remain confident, and employment is relatively strong, Mr. Berson said.
Fannie Mae said that its electronic origination and underwriting systems are now available nationally. Nineteen lenders have signed on to use one or both of the new systems, and more are expected to follow.
18631 TECHNOLOGY Presentment Rivals Warned on Patent
J.D. Carreker & Associates Inc., maintaining its own exclusive rights to certain electronic check presentment technologies, has begun notifying rival companies that it intends to defend a patent it has held since 1993. Industry insiders say the move sets the stage for legal battles over a promising new business.
To improve service in its retail and commercial businesses, First Union Corp. is building a central data base for customer information. The $74 billion-asset banking company, based in Charlotte, N.C., is working with Systems Techniques Inc., an Atlanta-based consulting firm. The bank is evaluating equipment vendors and determining a schedule for system rollout.
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With a key executive change in its health-care services area completed, Equifax Inc. is moving to expand revenues by making some formerly independent units work more closely with one another. The credit bureau and financial information services giant provides electronic data interchange and claims processing services to the health-care industry through two companies it recently acquired.
First Interstate Bancorp, Los Angeles, is in the home stretch of a multiyear, multimillion-dollar systems consolidation project. The $57 billion-asset bank is entering the fourth year of the effort, in which it has methodically consolidated a variety of systems in over 1,100 branches in 13 states to a single banking platform. The bank will use its new applications to deliver common products and services to every branch.
C. Webb Edwards, the First Interstate executive vice president who has led its huge systems conversion project, has decided to tackle a similar endeavor at Norwest Corp. Minneapolis-based Norwest hired Mr. Edwards to head its technology-based operations effective May 1.
18692 FINANCE Loan Syndications Stayed Strong in 1Q
With $190 billion in lending volume, bank loan syndications in the first quarter outstripped last year's first quarter by almost 79%, driven by a combination of sizable refinancings and acquisition loans. Loan syndication continues to benefit from banks' high levels of capitalization and a relatively moribund public debt market.
J.P. Morgan's first-quarter results earned the company an upgrade from analyst Frank R. DeSantis of Donaldson, Lufkin & Jenrette. Mr. DeSantis said the earnings performance removed the "fear factor" that came with the news that Bankers Trust New York Corp. would sustain a loss from trading revenues. Both companies derive large parts of their earnings from trading.
DeSantis photo and line graph on back page
From Birmingham, Ala., to Los Angeles to remote spots like DeWitt, N.Y., bankers are confronting a relatively new force in the industry: shareholder activism. When Wall Street learned that predator Michael Price, president of Heine Securities Corp., had bought 6.1% of Chase Manhattan Corp., the sign underscored that even the biggest banks are vulnerable.
Bankers are adding provisions to an $8 billion loan to Chrysler Financial Corp. that could work against investor Kirk Kerkorian's buyout bid for Chrysler Corp. Bankers' eagerness to join the refinancing for the Chrysler unit casts doubt on Mr. Kerkorian's ability to raise the $12 billion loan he would need to complete his hostile $22.8 billion deal.