The string of strong bank profit reports continued Tuesday, driven by fee-income businesses and trading.
But acquisition-related charges took a toll on the first-quarter reports of companies involved in megamergers, and credit card losses caught some analysts' eyes.
Merger-related expenses at Chase Manhattan Corp., which combined with Chemical Banking Corp. at the end of the quarter, caused an $89 million loss. Excluding the special $1 billion charge, Chase would have boosted net earnings 44%, to $937 million.
First Interstate Bancorp, in its last quarter as an independent company, lost $22.5 million.
Los Angeles-based First Interstate, acquired by Wells Fargo & Co. on April 1, cited merger-related charges of $251 million, including a $200 million payment to First Bank System Inc. for the termination of their white knight merger agreement.
San Francisco-based Wells had net income of $264 million, up 13% from last year.
Also reporting Tuesday, Citicorp's had net income of $914 million, up 10%, while Bankers Trust New York Corp. earned $138 million, reversing a loss of $157 million in the same quarter a year ago.
Strong growth in its credit card business helped boost Banc One Corp.'s quarterly earnings by 14%, to $346 million, while at Mellon Bank Corp., fee income helped earnings rise 6%, to $169 million.
State Street Boston Corp. said it earned $69.7 million, up 28%, on a substantial boost in asset management and securities custody-related income.
Analysts were largely pleased with the results across the industry. "Boring can be beautiful," said Diane Glossman, a banking analyst with Salomon Brothers.
At Chase, net interest income rose only slightly, to $2.16 billion, but noninterest revenues climbed 20%, to $1.56 billion. Much of the improvement in earnings before merger-related charges came from trading and gains on equity investments.
A nearly fourfold improvement in trading revenues, to $339 million, along with $132 million in tax benefits and refunds, helped offset a $102 million charge for credit card-related losses and a $60 million charge on real estate losses in Japan.
Revenues related to equity investments rose 23%, to $223 million.
"Results look strong once you make your way through the clutter and some outsized equity gains," said David Berry, a banking analyst with Keefe, Bruyette & Woods Inc.
Citicorp's net earnings from multinational corporate banking rose 18%, to $469 million, and earnings from corporate banking in emerging markets rose more than threefold, to $393 million.
Net income from worldwide consumer banking operations rose 11%, to $513 million. The earnings from consumer banking in developed markets rose 7%, to $289 million, after an 8% rise in pretax earnings to $464 million. The New York company's net from emerging markets rose 16%, to $224 million, after a 4% rise in pretax revenues to $292 million.
Some analysts said they were puzzled by the slow growth in pretax earnings from emerging-market consumer activities and a discrepancy between pretax and net earnings.
"It's really surprising after all the stuff Citicorp tells you about the high value and growth they see in emerging markets," said Lawrence Cohn, a banking analyst with PaineWebber Inc.
Mr. Cohn also noted that worldwide earnings from credit cards remained almost unchanged, at $265 million, as costs rose $170 million, to $547 million.
The bank reported a half-point rise in the loss ratio on its 58-million- card portfolio, to 4.38%. At a news media briefing after Citicorp's annual meeting, principal financial officer Thomas Jones emphatically took pains to say it remains far below the danger zone.
Net earnings improved in almost all categories at Bankers Trust. It had a dismal first quarter last year when it experienced substantial losses on Latin American operations. Investment banking net income climbed threefold, to $77 million, risk management posted a slight profit after $30 million in losses last year, and Latin American operations posted $19 million in earnings after a $108 million loss the same quarter of 1995.
Banc One's credit card loan balances increased 38% during last year to $11.7 billion, driving a 13% year-over-year increase in total loans.
"It's credit card business is really carrying the day at Banc One," said Fred Cummings, an analyst with McDonald & Company Securities. Though he has been a critic of the superregional's revenue growth, Mr. Cummings deemed it a "solid quarter."
"This really shows the value of higher-value businesses," the analyst said.
Banc One also showed a much improved net interest margin of 5.55%, up 32 basis points from 1995. Its nonperforming assets were up 13%, to $430 million, but company officials said the acquisition of Premier Bancorp Inc. in the first quarter raised that number.
Excluding Premier, the Columbus, Ohio, company's nonperforming assets grew 2.6%, satisfying analysts, who said they weren't concerned about the asset quality.
At Pittsburgh-based Mellon Bank, quarterly fee revenue was $503 million, up 26% from a year earlier. It was attributable primarily to higher mortgage servicing and credit card revenue from securitization, the company said.
Nonperforming assets were up slightly, to $250 million.
Wells Fargo's first-quarter performance, including a 28.34% return on equity and a 2.16% return on assets, is likely to once again rank it among the most profitable in the industry.
Its acquisition, First Interstate, appeared to suffer from merger ennui, analysts said. Loans fell $1.1 billion and deposits $2.8 billion in the quarter.
Wells' noninterest revenues grew 46%, to $354 million, primarily due to increased fees on mutual funds, loans, and credit cards. The net interest margin expanded 60 basis points, to 6.18%.
But charge-offs in the $3.9 billion credit card portfolio more than doubled, to $86 million. Wells attributed the increase to normal portfolio seasoning: Many of its customers came from a late 1994 marketing push, and in a typical cycle losses would be peaking by the middle of this year.
But Mr. Berry said Wells' 8.2% ratio of charge-offs to total credit card loans is nearly twice the industry average of 4.5%.
"There is no question that they sent some credit cards to people that in retrospect they would have rather not done," he said.
Contributing to this report were James R. Kraus, Brett Chase, Barton Crockett, Jacqueline S. Gold, and Karen Talley. +++
Wells Fargo & Co.
Dollar amounts in millions (except per share) First Quarter 1Q96 1Q95 Net income $264 $233 Per share 5.39 4.41 ROA 2.16% 1.80% ROE 28.34% 26.89% Net interest margin 6.18% 5.59% Net interest income 676 665 Noninterest income 354 242 Noninterest expense 567 537 Loss provision 0 0 Net chargeoffs 113 65 Balance Sheet 3/31/96 3/31/95 Assets $48,978 $52,324 Deposits 37,806 38,997 Loans 35,167 32,737 Reserve/nonp. loans 313.0% 347.2% Nonperf. loans/loans 1.5% 1.8% Nonperf. assets/assets 1.5% 1.7% Nonperf. assets/loans+
OREO 2.1% 2.6% Leverage cap. ratio 7.9% 6.6% Tier 1 cap. ratio 9.4% 8.7% Tier 1+2 cap. ratio 13.1% 12.8%
Banc One Corp. Columbus, Ohio Dollar amounts in millions (except per share) First Quarter 1Q96 1Q95 Net income $345.9 $302.5 Per share 0.77 0.68 ROA 1.45% 1.42% ROE 16.11% 16.29% Net interest margin 5.65% 5.36% Net interest income 1,195 1,009.6 Noninterest income 502.6 451.8 Noninterest expense 1,019.1 923.6 Loss provision 162.4 66.5 Net chargeoffs 154.7 74.3 Balance Sheet 3/31/96 3/31/95 Assets $95,708.2 $87,830.5 Deposits 70,217 65,407.9 Loans 69,207.2 62,495.5 Reserve/nonp. loans 245.5% 241% Nonperf. loans/loans 0.59% 0.59% Nonperf. assets/assets 0.51% 0.51% Nonperf. assets/loans + OREO 0.70% 0.72% Leverage cap. ratio 8.24%* 8.58% Tier 1 cap. ratio 9.52%* 10.23% Tier 1+2 cap. ratio 13.39%* 13.62%
Dollar amounts in millions (except per share) First Quarter 1Q96 1Q95 Net income $914 $829 Per share 1.75 1.53 ROA 1.37% 1.25% ROE 18.6% 18.8% Net interest margin 5.15% 4.61% Net interest income 3,263 2,801 Noninterest income 2,143 2,118 Noninterest expense 2,860 2,693 Loss provision 494 391 Net chargeoffs 444 293 Balance Sheet 3/31/96 3/31/95 Assets $263,566 $269,013 Deposits 172,004 165,112 Loans 165,451 156,374 Reserve/nonp. loans 126.9% 111.3% Nonperf. loans/loans 2.6% 3.0% Nonperf. assets/assets 2.1% 2.4% Nonperf. assets/loans + OREO 3.3% 4.1% Leverage cap. ratio NA NA Tier 1 cap. ratio 8.4%* 8.0% Tier 1+2 cap. ratio 12.3%* 12.1%
Dollar amounts in millions (except per share) First Quarter 1Q96 1Q95 Net income $937 $650 Per share 1.98 1.37 ROA 1.20% .87% ROE 19.5% 14.6% Net interest margin 3.43% 3.48% Net interest income 2,166 2,027 Noninterest income 1,869 1,557 Noninterest expense 2,406 2,360 Loss provision 245 185 Net chargeoffs 347 207 Balance Sheet 3/31/96 3/31/95 Assets $302,000 $306,000 Deposits 169,000 164,000 Loans 149,000 145,000 Reserve/nonp. loans NA NA
Nonperf. loans/loans NA NA
Nonperf. assets/assets NA NA
Nonperf. assets/loans + OREO NA NA
Leverage cap. ratio 6.7% 6.5%
Tier 1 cap. ratio 7.7% 8.0%
Tier 1+2 cap. ratio 11.7% 12.1% ===