First Chicago NBD Corp. is considering selling unprofitable parts of its corporate bank, bank officials told equity analysts last week at a private meeting in Chicago.
A bank spokesman confirmed Friday that the company was examining ways to boost profitability at the underperforming unit, and divestitures were a possibility. But he was quick to add that no sales are imminent.
Last year, the corporate bank, which includes trading, money management, and international operations, contributed 21% to net income of $1.15 billion, and had a return on equity of 9.2%. The overall bank had a 16.8% return on equity.
"They have got some work to do to improve the performance of the corporate bank," said Thomas McCandless, a bank analyst with Natwest Markets. "The trading unit is a drag on earnings, and they have not effectively cross-sold their fee services to corporate and middle-market customers."
It also remains to be seen how rapidly the bank will decrease the size of the international banking effort, which has performed poorly, Mr. McCandless said. Last September, the bank exited the emerging markets side of the business.
The bank said its plan to sell $25 billion of low-margin assets would be completed by yearend 1996.
The bank's second-quarter earnings estimate includes a projected charge- off rate for its credit card business of about 5.8% of managed receivables, up from 4.8% in the first quarter. This news helped send the stock down more than 5% during midday trading Friday.
But company officials said they remain comfortable with analysts' second-quarter earnings estimates of between $1.03 and $1.07 per share and their assessment that credit cards will earn the bank $80 million in the quarter.
The bank also said savings from the merger of NBD and First Chicago would exceed the $200 million the banks had predicted when the deal was announced last year, said Mr. McCandless.
The bank predicted it would have $1 billion in excess capital by the end of 1997, but declined to tip its hand on how it might use those funds.
The bank does not have an ongoing share repurchase program. Six months have passed since the close of the merger, so the company is free of a new Securities and Exchange Commission guidance that limits share buybacks in the half-year following certain mergers.
But Mr. McCandless said the bank indicated it expects the SEC to issue further clarifications in coming weeks, so it may be waiting until after that time to decide what to do with the capital.
Separately, seven mutual savings institutions went public last week, raising the number of mutual conversions to 41 this year.
Dime Community Bancorp., the largest thrift to go public this week, opened at $10 a share on Wednesday. After rising as high as $12, Dime share price slipped to $11.75 by Friday afternoon.
Prestige Bancorp in Pleasant Hills, Pa., also opened at $10 on Wednesday and rose to $10.187 by Friday afternoon.
Mechanics Savings Bank, Hartford, Conn., opened at $10. On Thursday, it earned a "buy" rating from First Albany Corp. which sent shares to $11.75 by Friday afternoon.
Security Bank Corp., Manassa, Va., opened at $10 on Thursday and slipped to $8.375 by the end of the week.
Provident Financial, a Riverside, Calif., savings bank, started trading Friday at $10, and rose to $10.93. Also entering the market at $10 a share Friday was Wayne Bancorp, Wayne, N.J. The share price rose to $11.187.