Bankers Trust New York Corp. reported a 22% jump in first-quarter earnings, to $169 million, as it took on still more of the characteristics of an investment bank.
Investment banking was the company's biggest source of net income, at $96 million-up 68% from the fourth quarter and 17% from the first quarter of 1996.
Total revenues climbed 22% to $1.18 billion, and the earnings per share of $1.89 exceeded analysts' consensus estimate by 4 cents.
"Trading and derivatives were the monster drivers four years ago, but today you have a much more classic investment bank," said Lawrence Cohn, an analyst with PaineWebber.
Also reporting Thursday were two major holding companies that suffered from higher consumer loan chargeoffs. KeyCorp of Cleveland increased its earnings less than 2%, to $212 million, and Bank of Boston Corp. was up 12%, to $207 million.
Bankers Trust's share price rose 37.5 cents to $75.375, while Bank of Boston's was up $2.50 to $66.125, and KeyCorp's was up $1.375 to $51.125.
Bankers Trust's earnings reflected the company's progress at redefining itself. In recent years it had been criticized for over-reliance on the riskier sides of the derivatives and securities trading businesses.
Mr. Cohn said the addition of Alex. Brown Inc., the Baltimore-based securities firm that Bankers Trust has agreed to acquire, would boost investment banking profits further and "create even more diversity."
The strong earnings were driven by steady improvement in businesses such as mergers and acquisition advisory and high-yield debt underwriting said Bankers Trust chief financial officer Richard H. Daniel. He said the organization was "making balanced progress."
Profits from trading and sales were $43 million, 10% over the fourth quarter and 79% higher than the first quarter last year.
Recovery continued even in the derivatives business, which was decimated in 1994 following a spate of lawsuits from angry customers. Known as risk management services, the unit earned $11 million, a 37% jump over the fourth quarter. The division lost $4 million in the first quarter of 1996.
But the growth in Wall Street-related businesses took a toll on Bankers Trust's costs. Higher incentive compensation connected with bonuses helped drive corporate-related expenses up 22% from the previous quarter, to $138 million.
Net income of $212 million translated to 96 cents a share, 1 cent under the consensus estimate of analysts polled by First Call.
Net interest income rose 3% to $700 million, while noninterest income rose 4% and noninterest expenses were flat. Noninterest income was offset by a $12 million decrease in loan securitization income, which the company attributed to a change in accounting.
Analysts said the decline in securitization revenue accounted for lower than expected earnings in the first quarter. Loans grew 3% from a year earlier, but KeyCorp's "targeted loans," those excluding mortgages, grew 11%.
R. Jay Tejera, an analyst with Dain Bosworth Inc., said Cleveland-based KeyCorp's loan growth was encouraging. He said it was coming primarily from its banks in the economically thriving Northwest.
"Banks with West Coast exposure have seen some very nice growth in loans and margins have ticked up,' Mr. Tejera said. But he expressed concerned about KeyCorp's chargeoffs.
"Nonperforming loans continue to be moving upward at a little faster rate than we hoped for," the analyst said. "The one nagging concern is this credit card business."
KeyCorp raised its provision for loan losses as net chargeoffs increased 56% from a year earlier, to $67 million. Chargeoffs were mainly attributable to the $6.5 billion auto finance business and $1.8 billion credit card portfolio.
The company raised its provision to $67 million, 52% higher than a year earlier and 18% above the fourth-quarter level.
Nonperforming assets grew to $425 million, or 0.85% of total loans, up from $400 million at yearend. KeyCorp said the increase came from throughout its territory and included commercial and consumer loans.
The $67.9 billion-asset KeyCorp is going through a major restructuring that includes selling or closing 280 branches and reducing its work force by 2,700, or 10%. The company indicated that benefits from the program would be realized in future quarters.
Chairman and chief executive officer Robert W. Gillespie said it has cut half of the 2,700 jobs, consolidated 100 of the branches, and has agreements to sell 77 branches.
KeyCorp has "set the stage to redeploy our capital from low growth businesses to those with higher earnings potential," Mr. Gillespie said.
"There's been pretty good cost control, but maybe the challenge is revenues," said Joseph Duwan, an analyst with Keefe, Bruyette & Woods. "Loan growth is solid, but not robust."
KeyCorp said it bought five million shares of its stock in the quarter, raising the total buyback since November to eight million of the 12 million shares it plans to purchase by yearend. That helped boost return on equity to 18.07% from 16.22% in the first quarter last year.
Bank of Boston Corp.
Bank of Boston reported per share earnings of $1.27, and analysts said they were generally pleased with the results.
Noninterest income grew 15%, to $330 million. Revenue from trading increased 46%, to $19 million, on profits made in Brazil. Foreign exchange trading revenues also grew 46%, to $19 million.
"The common denominator in many of our efforts is to carve out greater synergies between our domestic and global businesses, especially in areas such as asset management, capital markets, and convenience banking," said Henrique Meirelles, president and chief operating officer.
Commercial and industrial loans grew 13% to $14.2 billion, representing strong growth in the corporate services unit. But consumer lending was sluggish, and the total loan portfolio grew 4%, to $41 billion.
"It's just not a good environment in New England," said George Bicher, a bank analyst with Alex. Brown & Sons.
Credit cards were a problem for the $65 billion-asset bank. Net chargeoffs of $19 million were more than six times last year's level. The bank said its loss rate was 5.4%.
Expenses rose 3% to $544.2 million, but were down slightly from fourth quarter 1996 figure of $547.9 million. Higher salaries paid to executives and traders in the new capital markets unit accounted for the increase, said analysts.
Market watchers said they don't expect to see positive effects on expenses from the BayBanks Inc. acquisition until later this year, when Bank of Boston begins closing 60 branches and consolidating systems. +++ KeyCorp Cleveland Dollar amounts in millions (except per share) First Quarter 1Q97 1Q96 Net income $212.0 $208.0 Per share 0.96 0.88 ROA 1.30% 1.28% ROE 18.07% 16.42% Net interest margin 4.75% 4.70% Net interest income 700.0 682.0 Noninterest income 259.0 249.0 Noninterest expense 575.0 570.0 Loss provision 67.0 44.0 Net chargeoffs 67.0 43.0 Balance Sheet 3/31/97 3/31/96 Assets $67,893.0 $65,052.0 Deposits 44,239.0 45,401.0 Loans 49,724.0 48,273.0 Reserve/nonp. loans 234.50% 256.60% Nonperf. loans/loans 0.75% 0.71% Nonperf. assets/assets 0.63% 0.60% Nonperf. assets/loans + OREO 0.85% 0.81% Leverage cap. ratio 6.69%* 6.43% Tier 1 cap. ratio 7.70%* 7.71% Tier 1+2 cap. ratio 12.66%* 11.45%
*Estimated Bankers Trust New York Corp. New York Dollar amounts in millions (except per share) First Quarter 1Q97 1Q96 Net income $169.0 $138.0 Per share 1.89 1.52 ROA 0.55% 0.49% ROE 14.30% 11.90% Net interest margin 1.33% 1.02% Net interest income 308.0 213.0 Noninterest income 868.0 750.0 Noninterest expense 935.0 761.0 Loss provision - 5.0 Net chargeoffs 15.0 10.0 Balance Sheet 3/31/97 3/31/96 Assets $122,978.0 $108,144.0 Deposits 35,589.0 22,556.0 Loans 17,979.0 13,088.0 Reserve/nonp. loans 228% 138% Nonperf. loans/loans 1.80% 5.50% Nonperf. assets/assets 0.50% 1.00% Nonperf. assets/loans + OREO 3.10% 8.50% Leverage cap. ratio 4.50%* 5.30% Tier 1 cap. ratio 8.10%* 8.20% Tier 1+2 cap. ratio 14.60%* 13.40%
*Estimated Bank of Boston Corp. Boston Dollar amounts in millions (except per share) First Quarter 1Q97 1Q96 Net income $206.8 $154.9 Per share 1.27 0.93 ROA 1.33% 1.06% ROE 18.02% 13.94% Net interest margin 4.47% 4.40% Net interest income 620.0 565.5 Noninterest income 329.7 285.2 Noninterest expense 544.2 526.9 Loss provision 60.0 56.9 Net chargeoffs 79.0 51.0 Balance Sheet 3/31/97 3/31/96 Assets $64,780.0 $58,015.0 Deposits 42,307.0 41,349.0 Loans 41,019.0 39,268.0 Reserve/nonp. loans 218% 230% Nonperf. loans/loans 1.00% 1.00% Nonperf. assets/assets 0.70% 0.80% Nonperf. assets/loans + OREO 1.10% 1.10% Leverage cap. ratio 7.70%* 7.40% Tier 1 cap. ratio 8.90%* 8.70% Tier 1+2 cap. ratio 13.00%* 12.90%