Assets at the nation's top 25 banking companies soared during the first quarter as a new accounting rule for derivatives took effect.

The group's assets jumped 9%, to $2.06 trillion - the largest quarterly gain of the 1990s, according to an American Banker survey.

Highlighting the importance of derivatives to the banking industry, nearly half the gain was caused by the accounting change. The rule was intended to put all banks on equal footing.

Robust Period

Even without the change, the first three months of the year would have gone down as one of the most robust periods of growth in recent years, with assets climbing 4.6%. That works out to annualized growth of more than 18%. (A complete table appears on page 5).

Judah S. Kraushaar, an analyst at Merrill Lynch & Co., said he was unsure whether such growth would prove sustainable. He said he had noticed only "spotty evidence" of loan growth. Rather, asset growth has been coming largely from trading activities, which are inherently hard to forecast.

The change in derivatives accounting, which affected nine of the banks, drove up assets at the top 25 by some $82.2 billion.

It had the greatest impact at Bankers Trust New York Corp., adding $14 billion to its assets.

The new Financial Accounting Standards Board rule requires that the unrealized gains on swaps, options, and other derivatives be recoreded as assets. Unrealized losses, meanwhile, must be recorded as liabilities. Some unrealized gains and losses may be netted.

According to Fred DeBussey, senior vice president at Fitch Investors Inc., the long-anticipated rule change addressed some key issues.

"First, it makes things much more visible on the balance sheet. Second, it forces the banks to be more rigorous and formal in preparing netting agreements. And third, it makes uniform the reporting of these unrealized gains and losses."

Prior to the change, the accounting for these gains and losses varied according to the institution. Some companies, including Bankers Trust, recorded unrealized gains and losses on a net basis on the balance sheet. Other companies, such as NationsBank Corp., were reporting most of them on a gross basis.

At Charlotte, N.C.-based NationsBank, the change added approximately $250 million to assets, or 3.4% of the $7.4 billion first quarter gain in assets.

At Citicorp, the nation's largest banking company, the new rule added $15 billion to asset size on March 31 and accounted for 61% of a $24.5 billion gain in assets. At BankAmerica Corp., the change accounted for 68%, or $7 billion, of a $10.3 billion asset gain. At J.P. Morgan & Co., $15.3 billion of the $34.9 billion asset jump was due to the change.

Also, 87%, or $14 billion, of the $16.1 billion rise in assets at Chemical Banking Corp. was attributed to the change. At Chase Manhattan Corp., 95%, or $10 billion, of a $10.5 billion asset increase was due to the change.

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The impact of the accounting change will be felt on the performance and capital ratios that are based on average total assets. For example, BankAmerica reported a return on average assets of 1.07% for the first quarter, and a Tier 1 leverage capital ratio of 6.37%.

American Banker estimates that BankAmerica's ROA would have been 4 basis points higher, or 1.11%, and its Tier 1 ratio 23 basis points higher, or 6.60%, under the company's previous method of accounting. While mergers often have a big impact on growth of banks in the top 25, only one member of the group posted a big merger-related gain in the first quarter. KeyCorp shot up from No. 25 to No. 10 after acquiring Society Corp. in March.

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