A turnaround in trading and related revenues helped boost J.P. Morgan & Co. to a 90% increase in fourth-quarter net income.
Morgan, the first of the New York money-center banks to issue its yearend earnings, reported bottom lines Thursday of $366 million for the quarter and $1.3 billion for all of 1995.
The full-year increase was only 7%, indicating the extent of the recent recovery that chairman Douglas A. Warner 3d hailed as "across-the-board momentum." Analysts noted that the per-share income for the quarter of $1.80 beat their expectations by 20 cents, though half that amount was attributed to nonrecurring factors such as the sale of a custody operation.
Elsewhere, Mellon Bank Corp. and Wachovia Corp. each encountered higher credit card losses and posted single-digit percentage increases in net income.
Wholesale-oriented State Street Boston Corp. had a 15% rise in net income, to $65.5 million. And First Union Corp. registered strong growth in noninterest income and a 13% bottom-line improvement after consolidation with First Fidelity Bancorp. of New Jersey.
(An article on North Carolina-based Wachovia and First Union is on page 6.)
"It's not a blowout, but it's better than expected," UBS Securities analyst Charles W. Peabody said of J.P. Morgan's statement.
For the fourth quarter, assets increased nearly 20% to $185 billion, trading revenues more than doubled to $369 million, corporate finance revenues, mainly from fees, increased 30% to $158 million, and investment management fees rose 20% to $156 million.
However, risk management operations, including swaps and other interest rate contracts, decreased nearly 30%, to $107 million. Foreign exchange trading revenues slumped 60% to $23 million, and net interest revenues fell 6% to $488 million.
For some analysts, the biggest disappointment was Morgan's failure to match the third quarter's 81% rise in corporate finance fees to $195 million, or to significantly improve from the third quarter's 13% rise in investment management fees to $150 million.
"We viewed the third-quarter jump in corporate finance fees as the first sign of a tangible payback on the investments Morgan had made in underwriting," said Lawrence Cohn, a banking analyst with PaineWebber Inc. "It doesn't seem to have carried through."
However, others remained confident that Morgan would continue to build its position in capital-markets-related operations, noting that the bank came in seventh last year among institutions underwriting debt and equity, at $40.2 billion of transactions. It was fifth for the year among advisers on mergers and acquisitions, with 105 deals worth nearly $93 billion.
"They still need to make progress in high-yield debt and equity underwriting, but I think they will be successful over time," said Mr. Peabody.
Mellon's decision to write off $106 million on its $845 million "Cornerstone" credit card portfolio stunned analysts, who said the bank had not given any indication that its card-related problems were so severe.
Analysts said the move will probably permit Mellon to avoid sizable chargeoffs in future quarters. But they noted that Mellon's reserves have dropped sharply, from 2.04% of all loans to 1.7%, and that the bank has far fewer reserves to fall back on if more problems arise.
"Mellon has moved from being comfortably reserved to no more than adequately reserved," Mr. Cohn said. "If they get another bulge in chargeoffs, it will have to hit the earnings."
Mr. Peabody was even more critical: "Mellon's record of controlling risk hasn't been stellar. It's also disturbing, because it makes me a little bit nervous about other consumer finance companies."
But Mellon's credit losses and a 5% decline in net interest revenues were more than offset by a 29% drop in operating expenses, to $526 million.
Net interest income fell mainly as a result of the decline in margins by 13 basis points from the third quarter of 1995 and by 42 basis points from the fourth quarter of 1994.
Full-year earnings for Mellon rose 10% to $652 million. For the fourth quarter they rose 4% to $164 million.
Most of the improvement at State Street came from fee revenue, which accounted for 71% of total revenue. Full-year 1995 net income rose 12% to $247.1 million. +++
Mellon Bank Corp. Pittsburgh Dollar amounts in millions (except per share) Fourth Quarter 4Q95 4Q94 Net income $174.0 $41.0 Per share 1.18 0.07 ROA 1.68% 0.42% ROE 18.08% 1.10% Net interest margin 4.43% 4.85% Net interest income 382.0 401.0 Noninterest income 450.0 405.0 Noninterest expense 526.0 741.0 Loss provision 35.0 15.0 Net chargeoffs 138.0 20.0 Year to Date 1995 1994 Net income $691.0 $433.0 Per share 4.50 2.42 ROA 1.72% 1.14% ROE 17.77% 9.79% Net interest margin 4.62% 4.71% Net interest income 1,548.0 1,508.0 Noninterest income 1,676.0 1,647.0 Noninterest expense 2,027.0 2,374.0 Loss provision 105.0 70.0 Net chargeoffs 249.0 67.0 Balance Sheet 12/31/95 12/31/94 Assets $40,646.0 $38,644.0 Deposits 29,261.0 27,570.0 Loans 27,690.0 26,733.0 Reserve/nonp. loans 282% 403% Nonperf. loans/loans 0.60% 0.56% Nonperf. assets/assets 0.58% 0.62% Nonperf. assets/loans + OREO 0.85% 0.89% Leverage cap. ratio 7.80% 8.70% Tier 1 cap. ratio 8.30% 9.50% Tier 1+2 cap. ratio 11.50% 12.90%
J.P. Morgan & Co. Inc. New York Dollar amounts in millions (except per share) Fourth Quarter 4Q95 4Q94 Net income $366.0 $193.0 Per share 1.80 0.96 ROA 0.19% 0.11% ROE 14.70% 8.10% Net interest margin 1.37% 1.59% Net interest income 511.0 549.0 Noninterest income 1,030.0 710.0 Noninterest expense 990.0 963.0 Loss provision NA NA Net chargeoffs (2.0) (2.0) Year to Date 1995 1994 Net income $1,296.0 $1,215.0 Per share 6.42 6.02 ROA 0.73% 0.70% ROE 13.60% 12.90% Net interest margin 1.55% 1.56% Net interest income 2,109.0 2,101.0 Noninterest income 3,901.0 3,536.0 Noninterest expense 3,998.0 3,692.0 Loss provision NA NA Net chargeoffs (1.0) (27.0) Balance Sheet 12/31/95 12/31/94 Assets $184,879.0 $154,917.0 Deposits 46,438.0 43,085.0 Loans 23,453.0 22,080.0 Reserve/nonp. loans 965.80% 516.40% Nonperf. loans/loans 0.50% 1.00% Nonperf. assets/assets 0.06% 0.14% Nonperf. assets/loans + OREO NA NA Leverage cap. ratio 6.10% 6.50% Tier 1 cap. ratio 8.70% 9.60% Tier 1+2 cap. ratio 12.90% 14.20% ===