The nation's big banks are poised to report another quarter of robust earnings, sealing 1992 as a turnaround year for much of the industry.
As in the three previous quarters, wide net interest margins and declines in provisions for bad loans have stimulated profits, analysts said. And they expect the positive trends to continue into 1993.
"Overall, the picture is pretty much more of the same," said Judah S. Kraushaar, an analyst at Merrill Lynch & Co. "Margins, by and large, seem to be holding up."
Loan Demand Still Anemic
To be sure, there are plenty of reasons to remain cautious about the banks' future earnings. Their basic business - making loans - remains achingly weak, and the economy continues to drag.
But the arrival of a new administration in Washington that seems to be carefully cultivating business connections makes most industry watchers relatively upbeat.
"Has nirvana arrived? No," said John Leonard, an analyst at Salomon Brothers Inc. "But we're feeling good about the market for next year."
Analysts expect most banks to report fourth-quarter earnings in line with the third quarter. Exceptions include several New York banks that will feel the effects of lower trading profits.
Reduced Profits Seen at Morgan
Earnings at J.P. Morgan & Co., for example, which came to $2.01 a share in the third quarter, are expected to fall to $1.50, according to a consensus estimate of 14 analysts polled by Zacks Investment Research, Chicago.
Bankers Trust New York Corp., another trading powerhouse, is expected to earn $2.04 a share, down from $2.45 in the third period, according to a Zacks roundup of 13 analysts.
"The currency and interest rate markets took a breather in late October and November after the ride they were on earlier in the year," said Raphael Soifer, an analyst at Brown Brothers Harriman & Co. "And December is a very sleepy month in New York and London, where trading takes place."
Many traders, he added, have already received bonuses in anticipation of tax-law changes. That means that few took many chances on their trading positions.
"They are sitting on their hands, if you will," Mr. Soifer said.
Chemical Banking Corp. and Chase Manhattan Corp. are also expected to feel the impact of lower trading profits. According to the Zacks consensus, Chemical is expected to earn 94 cents a share, down from 98 cents in the third quarter, while Chase will report 80 cents a share, down from 94 cents.
"At the money-centers, the basic essence is rough stability in core earnings," Mr. Kraushaar said. "It appears that margins have peaked."
Citicorp, however, continues to mend. The nation's largest bank is keeping a tight lid on expenses, most analysts agree, and is aggressively attacking its mountain of problem real estate loans.
Improvement Expected at Citi
Fourth-quarter earnings at the nation's biggest bank are expected to improve to 29 cents per share from 17 cents three months earlier.
Outside New York, many superregional banks also continue to benefit from aggressive cost control and improving asset quality.
For the fourth consecutive quarter, net interest margins will remain strong, primarily because banks have locked in some of their current funding advantages by selling longerterm certificates of deposit.
"For a lot of regional banks, we'll see a couple of pennies more or a couples of pennies less, depending on their net interest margins," Mr. Soifer said.
First Chicago's Progress
Among the brightest spots is First Chicago Corp., which is expected to benefit from healthy venture capital gains and impressive progress in selling problem real estate, a program launched last quarter.
"First Chicago's asset disposition program is making encouraging initial progress, with a target of resolving close to 10% of the $2 billion portfolio," Salomon's Mr. Leonard wrote in a recent report.
Half of the problem assets should be off the Chicago company's books by the end of 1993, he added.
First Chicago's venture capital gains are expected to exceed the third quarter's $28.4 million, he said.
The 13 analysts polled by Zacks on First Chicago predict a quarterly profit of 88 cents a share, compared with a loss of $4.65 in the third quarter. The deficit reflected a special provision of $4.86 per share to set up the asset sales program.
Companies like NationsBank Corp., First Chicago, Bank of New York Co., and Fleet Financial Group are also aggressively dealing with troubled real estate assets by means of bulk sales.
Bank of New York, for example, recently told analysts that its nonperforming real estate loans will be down to $200 million by 1994. In the third quarter, Bank of New York had nonperforming commercial real estate assets totaling $415 million.
Most analysts applaud the easing of problem loans, but are hedging their bets on the overall health of the industry.
"The drift in nonperformers continues to be on the downside, but loan demand is still pretty static," Mr. Kraushaar said.
In Califonia, which continues to be buried in real estate rubble, BankAmerica Corp. is holding up well, according to analysts. Reports from 17 analysts issued in the past 30 days predict earnings of $1.21 a share for the nation's second-biggest bank company, virtually unchanged from $1.22 in the third quarter, according to Zacks.
Margin Seen Widening
BankAmerica's net interest margin is expected to expand once again, as a cut in consumer deposit rates takes effect, several analysts said. And the company will continue to benefit from merger-related cost savings in the fourth quarter and beyond.
The company - which has said that it expects to save about $1.2 billion through its merger with Security Pacific Corp. - is likely to raise that target to at least $1.4 billion, according to First Boston analyst Thomas Hanley.