First Union Corp. reported a $2.2 billion loss for the second quarter, a sharp swing from last year's profits of $873 million, because of heavy restructuring charges.
The Charlotte, N.C., banking company warned last month that the charges were coming. First Union, like Bank One Corp., is trying to slash costs, improve customer service, and get out of underperforming businesses that have siphoned off profits in the last year.
Excluding the $2.9 billion of after-tax charges, First Union's earnings per share of 73 cents was roughly in line with Wall Street's expectations. It was just one of several companies to release dismal results Thursday.
Though it reported a 5% gain in profits that was in line with expectations, Minneapolis-based U.S. Bancorp said yearend earnings would fall short of the already reduced goals set in December.
Unionbancal in San Francisco reported loan-loss problems that were more severe than it had indicated in June. [
Meanwhile, Regions Financial Corp. in Birmingham, Ala., said net income declined 8%, to $125.3 million, as rising interest rates choked off lending profits.
FIRST UNION CORP.
First Union said it has discontinued the origination of home equity loans through its Sacramento, Calif.-based finance company, Money Store, effectively shutting down the unit. It also said it is in the latter stages of negotiations to sell a number of assets, including its $38 billion mortgage servicing business, its $5.5 billion credit card business, $450 million of non-performing loans, and $400 million in poorly performing loans. Up to 90 branches are also up for sale.
"We are confident that our strategies will continue to produce positive results," said G. Kennedy Thompson, president and chief financial officer of the $258 billion-asset banking company.
Fee income was flat over last year, at $1.7 billion. Fees from capital markets rose 12%, to $852 million, driven by a three-fold gain in private equity investments, to $185 million. Investment banking fees declined 15%, to $122 million. Capital management fees rose 48%, to $773 million.
The loan-loss provision jumped to $493 million from $180 million last year "to reflect the current risk profile of the loan portfolio," the company said. Another $1 billion of after tax charges will be taken sometime this year, offset by gains from the sale of non-core businesses, First Union said.
Shares of First Union rose 75 cents, to close at $27.5625.
U.S. BANCORP
The projected yearend earnings per share range is now $2.18 to $2.23 rather than the $2.30 to $2.35 a share that executives discussed earlier. Analysts have already been skeptical of those latter numbers. The current consensus of Wall Street is $2.22.
"It's still growth, but it's sure a lot less growth than we thought it would be," said Ben Crabtree, an analyst with George K. Baum & Co. in Minneapolis. "But I would say that this is not a huge surprise to the market."
"We are confident we're on the right course, but higher EPS growth will take longer to achieve than we previously expected," said John F. Grundhofer, chairman and chief executive officer of the $86 billion-asset banking company, in a statement.
The company said loan growth and a surge in investment banking in the quarter helped its operating income climb 4.9%, to $402.6 million, or 54 cents a share. Including merger charges, net income rose 5%, to $393.1 million.
Non-interest income rose 22%, to $801.4 million, helped by investment banking unit U.S. Bancorp Piper Jaffray, where revenue rose 21%, to $72.8 million. Net interest income increased 7%, to $879.8 million due in part to hearty loan growth, the company said.
Non-performing assets increased from $366.6 million in the first quarter to $404.4 million in the second, largely due to one commercial credit, the company said.
Shares of U.S. Bancorp fell 6.25 cents, to close at $19.6875.
REGIONS FINANCIAL CORP.
Earnings per share of 57 cents met the consensus target set by Wall Street analysts.
The net interest margin fell to 3.62% from 4.08%. Net interest income fell 8.3%, to $332.1 million. Non-interest income was virtually flat at $121.3 million.
Shares of Regions rose 75 cents, to close at $21.6875.
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