Chase Profits Fall 22% against a Robust 1999: Citi Profits Surge; Regionals' Results Solid
Moyer, Liz, American Banker
Chase Manhattan Corp. said profits fell 22% from a year earlier, to $1.09 billion, as a slowdown in investment banking and lower profits from venture capital investments compared unfavorably with last year's big gains.
Still, the performance was not as dismal as feared. Excluding one-time charges, Chase's earnings per share of 95 cents beat the consensus by 12 cents.
The $396 billion-asset company has come under heightened scrutiny for the volatility of earnings in some of its marquee businesses, including venture capital. Operating revenues inched up 2%, to $5.8 billion, as Chase recorded double-digit revenue gains in many of its corporate and consumer banking activities.
Nevertheless, higher expenses because of acquisitions and doubts as to whether some of the market-related businesses at Chase can return to last year's record levels have attracted skepticism. "The standard question with Chase has been the sustainability of revenue growth," said Diane Glossman, an analyst at UBS Warburg. "That has been exacerbated this quarter by the appearance of higher expense growth."
Analysts said Citigroup Inc. compared more favorably. Citi said its profits rose 23%, to $3 billion, on double-digit gains in consumer and corporate and investment banking, despite the market downturn in the second quarter. Earnings per share of 87 cents beat the consensus by four cents.
Other regional banking companies reported earnings that were in line with expectations or better, driven by strong loan growth and higher fees.
"We will continue to reposition and strengthen our franchises with a focus on financial discipline," said William B. Harrison Jr., Chase's chairman and chief executive officer.
Non-interest revenues edged 1% higher, to $3.5 billion, as strong gains from trading and trust and investment management fees were offset by a sharp decline in private equity gains from the same period last year.
Revenues from global banking, which include investment banking, private equity, and corporate lending, rose 11%, to $2.6 billion, but profits from the unit fell 22%, to $559 million, because of expenses for compensation and the integration of Hambrecht & Quist. Investment banking fees rose 9%, to $639 million, driven by fees from merger advisory and equity underwriting. The results were partially offset by lower fees from bond underwriting and loan syndication.
Private equity gains were down 42% from last year, to $298 million.
Revenues from processing services rose 14%, to $877 million, and profits from the unit rose 20%, to $163 million. Revenues from consumer banking rose 1%, to $2.5 million, and profits rose 6%, to $443 million. The company said the gain was driven by deposit growth, retail brokerage, and middle market commercial banking services. Auto lending and narrower margins on credit card portfolio dampened earnings.
Chase also said Wednesday that Donald L. Boudreau, vice chairman and one of the few remaining senior-most executives from the old Chase, would retire. He will be replaced as head of global consumer services by David A. Coulter, the former chief executive of BankAmerica Corp. who most recently has been at The Beacon Group, an advisory firm that is to be acquired by Chase.
Expenses rose 13%, to $3.36 billion, partially as a result of the company's acquisition strategy to build its investment banking operations. During a conference call, Marc J. Shapiro, vice chairman for finance and risk management, said Chase would continue to build strategically, "but we do not intend to have a field of dreams approach," he said. "We will not build it and wait for the revenues to come."
Shares of Chase fell 25 cents, to close at $50.6875.
Citigroup, with $792 billion of assets, said revenues rose 9.3%, to $16.4 billion.
Profits from consumer banking rose 22%, to $1. …