J.P. Morgan Chase & Co. and FleetBoston Financial Corp. could hardly have had more different fourth quarters, with Fleet's profits edging higher and Morgan Chase's profits tumbling, but both said moves made late last year should mean improvements to the bottom line early in 2001.
Profits at Morgan Chase slid 68% in the fourth quarter, to $708 million, because of higher expenses, losses from private equity investments, and a general slowdown in capital markets. Executives at the company, the product of the just-concluded merger of Chase Manhattan Corp. and J.P. Morgan & Co., forecast double-digit revenue growth - in excess of what either predecessor company had anticipated.
Fleet said net income rose 7%, to $774 million, in line with estimates of 84 cents a share. Profits got a boost from last month's sale of $1.35 billion of problem loans to a New York fund manager, a move the company said should also spell an improvement to this year's results.
Five other banking companies reported mixed results Wednesday as the effects of charges, problem loans, and sluggish revenues from investment banking overshadowed gains in fee income. The day was also notable for the companies that fell short of estimates. Bank One Corp. surprised Wall Street the most by reporting a loss where most expected at least a small gain. (See story, page 1)
Still, analysts said the bad news brought the promise of improvement this year, especially in light of anticipated rate cuts by the Federal Reserve. "With the Fed tailwind, the second half of the year will likely be a lot better than what you saw in the fourth quarter," said Ronald Mandle, an analyst at Sanford Bernstein & Co.
Summit Bancorp said profits fell 19.3%, to $125.1 million, or 77 cents a share, in line with estimates. State Street Corp. reported a 40.6% profit decline, to $148 million, or 90 cents a share, 2 cents below estimates. Its fourth-quarter 1999 earnings featured one-time gains.
J.P. MORGAN CHASE
Results for the full year declined 23.6%, to $5.73 billion. Even excluding one-time merger charges and even after a December profit warning, $715 billion-asset banking company's per-share earnings of 37 cents fell 9 cents short of estimates. Morgan Chase took $1.25 billion of merger charges in the fourth quarter, mostly related to severance. The company offset the charge with $1.23 billion of gains from the sale of several businesses, including retail operations in Hong Kong.
Fourth-quarter expenses rose 24%, to $5.7 billion, and costs for the full year climbed 19%, to $21.3 billion, not including the merger charges. Morgan Chase executives said they had to abide by compensation promises made to investment bankers that joined the company in a series of acquisitions by Chase starting in late 1999.
During a presentation Wednesday, executives from the company said the rise in expenses was "unacceptable," and they vowed to hold costs this year to $21.5 billion.
One way to hold back costs is to fire people. Last year Chase and J.P. Morgan said they would eliminate 5,000 jobs in the merger. So far 1,600 jobs have been cut, including 800 in the investment banking operations. Geoffrey Boisi, vice chairman and head of investment banking, said another 1,000 jobs would be cut in his area in the next two months.
Marc J. Shapiro, vice chairman of finance and risk management, said the integration was progressing. He forecast 10% to 12% annual revenue growth for the combined company based on projected cross-selling of corporate and investment banking services. "That is higher than what was possible at either of the legacy companies," Mr. Shapiro said.
Fourth-quarter revenues from investment banking rose 20%, to $3.7 billion, but expenses in the group rose 37%, to $2.8 billion. Fees from mergers and acquisitions advisory gained 41%, to $407 million, and underwriting fees rose 8%, to $644 million. Total trading related revenue declined 8%, to $1.3 billion. Private equity investing led to a $92 million loss, compared with a gain of $1.62 billion a year earlier.
Revenues from investment management and private banking rose 39%, to $894 million. Revenues from consumer services rose 1%, to $2.6 billion.
Morgan Chase's shares fell 0.35% to $53.
Eugene M. McQuade, vice chairman and chief financial officer, said the positive results were partly aided by the company's ability to get some problem loans off its books last month, when it sold the loan portfolio to Patriarch Partners LLC.
"We think we've aggressively addressed the problem loan issue for right now," he said in a telephone interview Wednesday. "It's positioned us to see some better earnings in the first half of 2001."
Profits were also boosted by some positive results in traditional banking business lines, which helped offset a "weakness" in the capital markets, Mr. McQuade said. Fourth-quarter revenues from capital markets dropped 28%, to $536 million.
"Our retail distribution is doing well, our credit card business did particularly well, and we're seeing continued improvement in consumer credit quality," he said.
Nonperforming assets, meanwhile, fell 10% from the third quarter, to $925 million, thanks to last month's sale of troubled loans. "There's no question that this improved the quality of the earnings," said Mark Fitzgibbons, an equity analyst with Sandler O'Neill & Partners.
Credit quality will continue to dog banks at least for a while, he said. "Fleet and many other large regional banks are likely to have their fair share of large problem credits coming out of the woodwork in the next couple of months."
Meanwhile, the end of 2000 marked the first full year of the operation of FleetBoston - Fleet Financial Group acquired BankBoston Corp. in 1999. Now the company is poised to acquire Summit Bancorp of Princeton, N.J. That deal, which is set to close in early March, will lead to an after-tax charge of about $500 million, Mr. McQuade said.
Fleet shares fell 1.64% to $41.1875.
A change-in-control provision forced Summit to take a one-time charge of $21.2 million for outstanding restricted stock in preparation for its upcoming purchase by Fleet.
For the year, Summit reported a 16% rise in net income, to $513.6 million.
Fourth-quarter income from fees rose 19.9%, to $118.1 million. Net interest income rose 3.2%, to $341.7 million.
Nonperforming assets rose 82.7% from a year earlier, to $33.8 million.
Summit's stock fell 1.78% to $41.3125.
Excluding the effect of gains in 1999, the Boston banking company's fourth-quarter profits rose 24.4%, on gains from fiduciary fees derived from investment services, new business from existing clients in the United States and Japan, and new clients in Europe.
Revenue from investment management fees through State Street Global Advisors fell 22.6%, to $130 million. Again, revenues for the corresponding period in 1999 included revenue from pension business that have since become part of CitiStreet, a joint venture with Citigroup Inc.
Revenue from securities processing and investment management services, the mainstays of the company's business, enabled operating profits to grow. Ronald O'Kelley, chief financial officer, said this is "a strong indication of State Street's ability to perform in down markets."
Expenses rose 4%, to $653 million, because of a larger staff and higher salaries, which were slightly offset by lower transaction processing services expenses, the company said.
State Street's stock fell 4.16% to $110.
Related Content Online:
- FleetBoston Fourth Quarter Net Income of $774 Million or $.84 Per Share; Full Year Operating EPS Up 16% From 1999; Nonperforming Assets Reduced by 10% From September 30 (Source: FleetBoston Financial Corp. Press Release)
- State Street Corporation Announces 2000 Earnings per Share Up 21%; Fourth Quarter EPS Up 23% (Source: State Street Corp. Press Release)
- Summit Bancorp. Reports Fourth Quarter and Full Year 2000 Earnings (Source: Summit Bancorp Press Release)
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