Union Bank's Shares Sink Despite Rise in Earnings
Despite solid second-quarter earnings, the stock price of San Francisco's Union Bank has slipped several notches in the past week.
Most analysts see the fall-off as a reaction to real estate problems at other major California banks. But turmoil in the Japanese financial community may also be hurting Union Bank, 77% of whose shares are owned by the Bank of Tokyo.
"They had some shake, rattle, and roll when Wells Fargo started talking about problems, but recently the stock moves correlate better with events in Japan," noted Virginia A. Adair, a bank analyst at Merrill Lynch Capital Markets.
Sombering Days in Japan
Japan has been hit by revelations that its four largest securities firms reimbursed the stock market losses of favored customers.
Union Bank's stock edged down when Wells Fargo & Co. announced a big increase in late June in the quarterly loan-loss provision.
In the past 10 trading days, however, the stock has fallen 12%, to $22 a share.
Assets totaling $16.6 billion make Union Bank the fifth-largest bank in California and the biggest U.S. bank controlled by a Japanese bank.
Sharp Look at Real Estate
Long a major real estate lender in California, Union Bank has amassed a sizable portfolio. That exposure recently sparked investor nervousness even though no problems have been reported.
"California has its real estate problems and they are a lender, but problems have not surfaced at Union Bank," said James Rosenberg, an analyst for Shearson Lehman Brothers Inc., who rates the stock "neutral-high risk" for investment purposes.
"I'd say it's mostly the spillover from the troubles elsewhere. It's not specific to them," agreed Robert Albertson of Goldman, Sachs & Co., New York.
Stage Front for Nonperformers
Because only a minority portion of shares trade, Ms. Adair pointed out that downside moves in the stock can be accentuated. Union bank's investor-relations officer, Nancy Hazelrigg, agreed.
In the second quarter, Union tallied net income of $1.07 a share, up from $1.05 a year ago. Return on average assets was 0.87% and return on equity was 15.09%.
As at other California banks, there was an increase in nonperforming loans. They rose to $315 million in the second quarter from $298 million in the first quarter.
Nonperforming loans were 2.37% of loans on June 30 - more than tolerable in contrast with many other major U.S. banks at this moment.
The bank's provision for loan losses for the quarter was $37 million, compared with $30 million in the first quarter and $28 million in second-quarter 1990.
Analysts noted that reserve coverage is ample. The increased provision raised the reserve-to-loans ratio to 2.53%, up from 2.40% in the first quarter.
Tokyo-San Francisco Nexus
Reserve coverage of nonperforming loans was a healthy 106.62%.
Union Bank's headquarters have been in San Francisco since Bank of Tokyo acquired controlling interest and merged the bank with the former California First Bank.
Previously, it was owned by Standard Chartered PLC, the British bank, and operated from Los Angeles.
PHOTO : Together Again Percent changes in shares prices Source: DB Technology Inc., Reuters