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Banks edge out expectations
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October 20, 1998: 1:51 p.m. ET
Chase still hurt by overseas business but Wells Fargo, Mellon shielded
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NEW YORK (CNNfn) - Three of the nation's largest money-center banks Tuesday reported third-quarter profits that illustrate the disparity between the more conservative domestic financial institutions and their international counterparts.
As witnessed by the shocking revelations last week from BankAmerica, banks that have aggressively expanded into the global capital markets and the activities normally saved for investment banks have fared worse.
"This reminds companies it's important to have banks in their more traditional roles of lending," said Chip Dickson, banking analyst at Salomon Smith Barney.
And even though Tuesday's earnings reports topped Wall Street's expectations, Chase Manhattan Corp., Mellon Bank Corp. and Wells Fargo & Co. helped to further reinforce the traditional approach. "The banks that got hit the hardest had capital exposure and global exposure," Dickson said.
Chase Manhattan, No. 2
At Chase Manhattan, growth from its domestic credit-card and lending activities still wasn't enough to completely offset the 20-percent decline in its global business.
The New York-based financial concern, the nation's second-largest bank, reported a 32-percent decline in operating earnings to $738 million, or 82 cents a share, from $1.08 billion, or $1.19 a share.
But analysts had expected the bank to earn only 77 cents a share, according to First Call.
Total revenue eased 3 percent to $4.5 billion.
Chase's stock (CMB) gained 3-1/16 to 54-5/16 in active trading on the New York Stock Exchange.
"Difficult global market conditions affected third-quarter earnings negatively," said Walter Shipley, chairman and chief executive.
The tumultuous global stock markets left Chase with only $60 million in equity-related investment gains, compared with $249 million a year earlier. Global trading revenue dropped 60 percent to $259 million.
And provisions for credit losses jumped to $455 million from $190 million in the 1997 third quarter.
As for the key trouble spots plaguing the banking sector, Chase had about $200 million worth of lending and trading-related exposure to Russia as of Sept. 30. Credit exposure to hedge funds totaled $2.7 billion, of which $300 million was unsecured.
For the latest nine months, Chase reported a 4 percent decline in net income to $2.87 billion, or $3.20 a share.
Wells Fargo
But the emphasis placed on the domestic market by Wells Fargo & Co. helped shield the San Francisco-based financial institution from the international turmoil. In addition, bank generally took advantage of low interest rates at a time of domestic economic expansion.
In the third quarter, net income climbed 20 percent to $347 million, or $3.99 a share, from $290 million, or $3.23 a share, a year earlier.
By comparison, loan loss provisions at Wells Fargo declined to $160 million from $175 million.
"This final stand-alone performance demonstrates the soundness of our franchise as we enter the merger with Norwest," Wells Fargo Chairman Paul Hazen said.
For the nine months, income rose 17 percent to $999 million, or $11.44 a share.
Wells Fargo shares (WFC) rocketed 11-1/8 to 378-5/8 in Tuesday trading.
Mellon Bank
Mellon Bank announced double-digit gains in net income in the third quarter, helped by lower interest rates as well as its mix of fee-based revenue.
The Pittsburgh, Pa.-based financial concern said net income rose 11.8 percent to $218 million from $195 million.
Mellon's Dreyfus Corp. asset-management subsidiary helped to contribute $712 million of fee revenue, up $77 million from a year earlier.
As with Wells Fargo, better credit quality at home allowed Mellon to reduce its provisions for loan losses to $15 million from $25 million a year earlier.
For the first nine months of 1998, net income totaled $648 million, or $2.41 a share.
Shares of Mellon (MEL) were up 1-3/16 at 61-5/8.
-- by staff writer Robert Liu
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