Special Report: Big Banks' Third-Quarter Earnings
The industry kept its earnings streak going as several big companies - including Chemical, Banc One, and Wells Fargo - reported strong third- quarter results. Mellon also posted an increase, partly due to earnings from Dreyfus, the fund giant it bought last year. But profits were down at Citicorp, which had extraordinary tax gains a year earlier, and at Keycorp.
Profits were up more than 20% at NationsBank, Bank of New York, and First Chicago - and 83% at First Interstate. Chase Manhattan was off 7% because of extraordinary gains in last year's third quarter. Bankers and analysts hailed the reports as strong signs of the industry's ability to make money.
BankAmerica and Norwest posted big earnings gains, and Fleet and Republic New York were also up. Pittsburgh's PNC was the exception, reporting a sharp decline attributed to lower net interest income.
Warning from Leach: Don't Oppose My Bill
House Banking Committee Chairman Jim Leach warned bankers against opposing his banking legislation over a provision that would bar the Comptroller's office from expanding banks' insurance powers. "Unless this approach is adopted, the chairman of the Rules Committee has made clear that he will insist on an amendment substantially rolling back bank insurance powers," Rep. Leach wrote. "I would stress that the insurance industry has always prevailed on amendments on the House floor."
The two largest bank trade groups are facing a rebellion from state affiliates over the proposed moratorium on new bank insurance powers. Frustrated by what they see as the "inside the beltway" mentality of the American Bankers Association and the Independent Bankers Association of America, the state associations are urging their members to lobby Congress directly.
Susan F. Krause, the OCC's risk management guru, favors allowing financial services providers more freedom "to operate according to market forces." Meanwhile, she's trying to build a better bank exam.
Two key House leaders have agreed that banks should not be required to move existing securities activities to holding company subsidiaries if the Glass-Steagall Act is repealed, industry sources said.
Huntington's mortgage unit agreed to spend $420,000 to settle Justice Department charges that it discriminated against black borrowers in Cleveland.
Wells Makes Hostile Bid for First Interstate
Wells Fargo electrified the industry by launching an unsolicited takeover bid for First Interstate. The offer - a stock swap valued at more than $10 billion, or nearly three times First Interstate's book value - was received enthusiastically by investors and analysts, but the target's chairman said he was "deeply disappointed" that Wells would take "this uninvited action."
BankAmerica's departing CEO is keen on big mergers, but other senior executives there aren't, says a prominent analyst. Thomas K. Brown says he thinks BofA held talks this summer with NationsBank, Chase, Bank of Boston, and Barnett.
Loan growth was the recurring theme as midsize regional banks across the Southeast issued strong third-quarter earnings reports.
N.E. Merger Wave Leaves Small Banks High and Dry
Northeastern community banks hoping to capitalize on merger mania are running into a problem: Nobody's buying. Six recent merger deals involving 10 Northeast regionals have cut down the number of potential acquirers.
Agriculture economist Chris Hamilton is helping First National Bank of Barry, Ill., by helping its customers. A growing number of ag banks are hiring full-time consultants to advise farmers on management.
A New York State thrift's plan to buy almost $500 million of deposits would dilute its tangible book value by 97%, a bank analyst said. MSB Bancorp in upstate Goshen has a deal to buy eight branches in the region from San Francisco's First Nationwide Bank.
A battle over interstate branching seems unlikely in South Dakota, as independent bankers appear poised to side with the South Dakota Bankers Association in favor of an early opt-in.
Sensing a market opportunity, People's Bank of Bridgeport, Conn., the state's largest independent bank, is providing a full menu of correspondent banking services.
18375 SMALL BUSINESS
Wash. Mutual Buying Small-Business Specialist
Turning its small-business strategy up a notch, Washington Mutual Inc. plans to buy Western Bank of Coos Bay, Ore. The transaction, for stock valued at $159 million, would bring Seattle-based Washington Mutual a fast- growing, solidly performing specialist in small-business banking.
Regulators Stepping Up Scrutiny of Insider Loans
Regulators are ready to pounce on institutions where insider lending has gotten out of hand, a consultant says. With the vast turnover in senior management due to consolidation, some loans are falling through the cracks.
Compliance officers need to keep marketing and sales departments on a short leash, a consultant warns. Inventive sellers tend toward bait-and- switch, a compliance non-no.
Welcome to America; Here's Your Photo Card
Polish and Slavic Federal is issuing photo ATM cards to appeal to people without driver's licenses or other photo identification. Many members of the Brooklyn credit union are recent immigrants.
CUNA Mutual Group is in danger of losing what may be its biggest customer. In an open letter, the head of Citizens Equity Federal Credit Union in Peoria, Ill., said the industry's largest insurance provider "is starting to show signs of being noncompetitive" in bond and credit insurance. "Once that is reconfirmed through competitive bidding, we will leave them in a heartbeat."
Boeing Employees Credit Union of Tukwila, Wash., was bracing for a whirlwind of member aid requests in the strike by 33,000 Boeing Co. employees. The management at the country's third-largest credit union sees potential threats as well as opportunities in the latest upheaval at the aerospace manufacturer.
The NCUA let Hawaii's corporate credit union keep a collateralized mortgage obligation that failed a recent rate-stress test. The regulator found that Pacific Corporate Federal Credit Union was liquid enough to hang onto the CMO, sources said. October 16
First USALeads Gains At Card Companies
Four banks specializing in credit cards announced income growth for the third quarter of this year, with MBNA, the second-largest bank card issuer in the nation, leading the pack in gains.
American Express tweaked its successful frequent traveler program, Membership Miles, by adding 30 partners offering a variety of retail goods and services.
Computers make Edward Hogan nervous. So why has MasterCard sent the ex- FBI agent riding the information superhighway in search of business opportunities for members? "Technology never brings a product," he says. "It takes an understanding of the business to make technology work."
Citibank, staking out a leadership role in the emerging field of electronic benefits transfer, won a key endorsement from the Treasury Department.
Amex continued its high-level reshuffling by naming Thomas O. Ryder to lead the international operations of American Express Travel Related Services. He had managed the company's relationships with merchants. October 18
Bank-Run Stock Funds Trail Nonbank Rivals
Sizzling equity markets fueled strong investment results for stock mutual funds in the third quarter, but bank-run funds lagged behind their nonbank competitors.
Trust and private bankers from across the country convened in Chicago to consider new sales methods for grappling with the growing threat of nonbank competition.
The head of PNC's mutual fund operations, who resigned recently, left over a dispute about the overhaul of the company's investment units, sources say.
Chase has moved its offshore mutual fund operations from the Bahamas to Luxembourg so it can sell funds in European Union countries. "In Europe you can't even have a brochure out on the table unless the fund is registered there," an executive says.
Some banks have taken mutual fund disclosure to a new level by making the point in prospectuses that the funds they manage may invest in companies that borrow from the bank.
Pru Seen Near Big Selloff To Norwest, First Union
Prudential is preparing to split up its huge home mortgage unit, selling the biggest pieces to Norwest and First Union. Well-placed sources said the banks were in the final stages of talks toward deals that could bring Prudential nearly $1 billion and make Norwest the nation's largest mortgage servicer.
The resurgence of consumer demand for fixed-rate loans fueled strong earnings at Fannie Mae and Freddie Mac in the third quarter.
An effort by Freddie Mac to speed up the mortgage lending process is starting to spark a backlash from lenders. Some leading executives say that the agency's use of "credit scoring" after buying mortgages is unfair to lenders and could curb lending to members of minority groups.
Freddie Mac, whose credit standards have long helped define high-quality mortgages, is starting to tiptoe into the lower end of the market.
Gregory Barmore, chief executive of GE Capital Mortgage, is considered a prime mover behind a coalition being formed by large lenders to lobby for favorable legislation apart from the Mortgage Bankers Association.
Integration Issues in CoreStates-Meridian Deal
CoreStates would face significant challenges in technology integration, particularly on the retail side, in absorbing Meridian Bancorp. The head of retail banking at Meridian predicts a "best of breed" approach to choosing systems.
While banks wrestle with a host of electronic banking issues, nonbanks may "eat their lunch" in the business, says an author of a recent Salomon Brothers study.
A Maryland bank is testing the long-awaited financial electronic data interchange service of the national Automated Clearing House Association.
A leading provider of on-line transaction systems and security for ATM networks has developed an encryption device designed to protect bank transactions sent over the Internet.
Jockeying for position in the electronic commerce market, Intuit announced that it would provide Internet access through its Quicken personal finance software.
Syndicated Lending Drops from Record Pace
Syndicated lending volume in the third quarter retreated from the blistering pace in the second quarter - a drop some experts attributed to gains in the stock and bond markets.
Meridian Bancorp's planned $3.2 billion sale to CoreStates Financial would have been unthinkable a year ago. But over the past year, Meridian's board has rebelled against its independence-minded chief executive. It's just the latest example of board activism that has swept the industry along with merger mania.
Shares of Seacoast Banking in Florida surged after the company got a "buy" rating as a takeover play and as a bank that would do well without being acquired.
A $450 million issue of 30-year subordinated notes by NationsBank got a good reception on the heels of the company's strong earnings report. At current bond prices, investor demand for longer-dated paper is strong, since the returns on bank bonds with shorter durations have generally been declining relative to Treasuries.