Capital Markets Results Gave a Lift in 4Q to BankAmerica, First Union

By de Senerpont Domis, Olaf; Chase, Brett | American Banker, January 22, 1998 | Go to article overview
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Capital Markets Results Gave a Lift in 4Q to BankAmerica, First Union

de Senerpont Domis, Olaf, Chase, Brett, American Banker

Strong results from capital markets operations helped boost fourth- quarter earnings at several large banks reporting Wednesday.

BankAmerica Corp., the nation's fourth-biggest bank, posted profits of $812 million, a 9% rise, thanks in part to fees and commissions generated by its recently acquired investment bank Robertson Stephens & Co.

First Union Corp. also got a big lift from capital markets. But, because of the company's November acquisition of Signet Banking Corp., net earnings collapsed 27% from the year-earlier period, to $362 million.

"We're still feeling very good about two areas-capital management and capital markets-that really kicked in," said Robert T. Atwood, First Union's chief financial officer. "The highlight for the year is, we continue to build those nuclear engines."

Republic New York Corp. said its quarterly earnings rose 7%, to $116 million, bolstered by foreign exchange trading and gains on securities and loans held for sale.

And at CoreStates Financial Corp., which agreed in November to sell to First Union, extraordinary items helped push fourth-quarter income up 11%, to $217 million. Excluding the gains, CoreStates would have suffered a 1.5% decline.

Washington Mutual Inc., which reported earnings late Tuesday, posted profits of $238 million, compared to a loss of $82.8 million in the same period of 1996. The prior year's results were depressed by expenses related to acquisitions.

New York-based GreenPoint Financial Corp. said earnings rose 8%, to $37 million, on a 22.5% rise in noninterest income.

BankAmerica Corp.

Capital market gains and a vibrant California economy helped mitigate Asian market woes for the San Francisco-based giant.

Earnings per share of $1.12 matched analysts' consensus estimates exactly.

"Trading revenues are definitely weaker, as expected, but BankAmerica continues to benefit from the surging California market," said Joseph K. Morford, an analyst with Bankers Trust New York.

Michael E. O'Neill, BankAmerica's chief financial officer, noted during a conference call Wednesday that consumer loan originations rose 18% during the last three months of the year.

"Loan growth was clearly firing on all cylinders, private equity was a nice offset to trading losses, and credit quality held up," Mr. O'Neill said.

Meanwhile, the company's trading income fell 53%, or $71 million, because of problems in Asia. In addition, BankAmerica's net foreign credit losses-nonexistent in the fourth quarter of 1996-climbed $46 million during the latest reporting period, primarily due to soured loans in Thailand.

"Our risk management processes were tested in the fourth quarter by the volatile market conditions in Asia," said chairman and chief executive officer David A. Coulter. But, he said the company was well-prepared to deal with future market fluctuations.

The $259 billion-asset company moved to protect itself from further losses by allocating an additional $580 million of reserves to cover foreign loan losses, bringing that total to just over $1 billion.

Gains in other noninterest income easily made up for the problems at BankAmerica's trading desk. The company increased total noninterest income by 9%, to $1.631 billion, during the fourth quarter.

A chunk of that increase came in the form of $195 million in fees and commissions from Robertson Stephens.

"Robertson Stephens made a very important contribution to noninterest income at the end of last year," Mr. O'Neill said.

In addition, income from private equity investment increased 75% to $188 million, and gains on sales of loans more than tripled, to $93 million.

First Union Corp.

Excluding the costs associated with the Signet deal, quarterly income at $153 billion-asset First Union would have improved 5% from a year ago, the company said.

Operating earnings per share of 81 cents were 4 cents short of analysts' consensus estimates.

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Capital Markets Results Gave a Lift in 4Q to BankAmerica, First Union


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