Magazine article American Banker

UnionBanCal Credits Gain to Credit Quality Upgrade

Magazine article American Banker

UnionBanCal Credits Gain to Credit Quality Upgrade

Article excerpt

UnionBanCal Corp. said its campaign to cut credit costs helped its fourth-quarter profits rise 10%.

The San Francisco company said Thursday that it beat the analyst consensus by 5 cents a share and that share buybacks helped its operating earnings rise 20%.

The $36 billion-asset company, which is mostly owned by Bank of Tokyo-Mitsubishi Ltd., has been reducing its exposure to syndicated lending and making fewer loans to companies that are not already customers. It said this has led to better credit quality -- which had been a problem at UnionBanCal -- and as a result slimmer loan-loss provisions.

To offset the shrinking of its commercial portfolio and falling loan spreads, the parent of Union Bank of California actively marketed residential mortgages, taking advantage of the home finance boom.

Richard Hartnack, UnionBanCal's vice chairman, said in a Friday conference call with investors that he was pleased with the "strong" results for the quarter and year. Earnings for the year rose 9.6%, to $537 million.

For the three months, commercial and industrial loans fell 10.23%, to just under $11 billion, and nonperforming assets in that category fell 41.5%, to $276 million. Commercial mortgages rose 17.41%, to $4 billion, and residential mortgages rose 31.85%, to $6.1 billion.

Gary B. Townsend, an analyst with Friedman, Billings, Ramsey & Co. in Arlington, Va., said UnionBanCal's progress in dealing with asset quality deterioration and in boosting earnings growth "has been consistent." It "handled even critical areas, like energy and telecommunication, well," he said.

UnionBanCal's new nonperformers included the sectors that have dogged other banking companies, namely the airline, telecommunications, and utilities businesses. It has $34 million of exposure to United Airlines, whose parent, UAL Corp., is the most recent major airline to file for bankruptcy protection; it has $150 million in four aircraft leases to United but no exposure to other airlines, it said. …

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