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Bank One sees bleak 2000
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January 11, 2000: 2:01 p.m. ET
Profit in 4Q, year will trail forecasts; stock dividend may be eliminated
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NEW YORK (CNNfn) - For the third time in less than a year, Bank One warned Tuesday that fourth-quarter 1999 and full-year 2000 earnings will ring in below Wall Street's expectations as it struggles to right its troubled First USA credit card unit.
Bank One (ONE) shares fell 1 to 29-1/4 after the company announced it will take $725 million in charges in the fourth quarter, in part to cover one-time losses in the credit-card unit. Bank One, the country's fourth-largest bank and second-largest issuer of credit cards, is scheduled to release the final tally on its fourth quarter and full year next week.
Click here for Bank One's interactive presentation
The warning came as the bank's executives gathered with investors and the media in New York to explain their strategy for reducing costs, improving profitability and ultimately boosting the sagging share price, which has plummeted more than 40 percent in the past eight months.
Bank One warned initially in August and again in November that its 1999 earnings would be lower than expected because it had lost customers in its credit-card unit -- in many cases because of the way it billed its clients for late fees.
"We are committed to restoring the confidence of investors through the effective execution of our strategies across all lines of business in 2000," said Verne Istock, president and acting CEO. "Clearly a higher stock valuation will be the ultimate measure of our success."
Declining share value
A higher stock valuation is something Bank One has not enjoyed of late. In the past 12 months the company's shares have fallen significantly, partly because of allegations that it withheld financial information about its earnings and partly because of uncertainty over changes in senior management. The bank's former chairman and CEO, John B. McCoy, resigned in December.
The bank also has had trouble wringing profits from large outlays on Wingspanbank.com, its Internet-based banking service, and on First USA, which has caused Bank One troubles consistently since it was acquired two years ago. Bill Boardman, the Bank One vice president who runs the credit-card division, said First USA's profitability isn't expected to return to industry-accepted levels until 2001.
Bank One's share price has fallen more than 40 percent since hitting 63-5/8 in May
The Chicago-based bank expects to post operating earnings of 78 cents a diluted share for the fourth quarter, a penny shy of the 79 cents forecast by analysts polled by First Call Corp. For 2000, the bank expects an operating profit of $2.80 to $3.00 a share. It was expected to earn $3.42 from operations, according to First Call.
The $725 million in fourth-quarter charges will include a write-down of losses at First USA as well as additional restructuring costs, the company said. Those costs will equal 42 cents a share, cutting the bank's net profit to 36 cents a share in the fourth quarter.
Stock dividend to be eliminated
Bank One expects to maintain its current $1.68 a share annual cash dividend but plans to eliminate a stock dividend paid every two years, pending a Jan. 18 vote of the company's board. It also hired executive-search firm Russell Reynolds Associates to search for a new chief executive.
Detailing the charges, Bank One said it will take $260 million in restructuring charges for personnel, facilities and equipment expenses, and another $200 million related to adopting new federal consumer credit guidelines, including an increase in provisions for credit losses. Another $185 million will be used to write down assets at the credit card division and $80 million being used to cover credit card fraud losses and deterioration of residual values on some of its auto leases.
For 2000, Bank One executives pledged repeatedly to improve profitability and boost the stock price, which they feel will be more reflective of the company's efforts and position in the U.S. marketplace, Bob Rosholt, Bank One's chief financial officer, told analysts and investors at the meeting.
They also pledged to stick to their earnings forecasts, something they've had trouble with recently. Bank One warned twice last year its earnings would be below expectations because of lower credit-card profits at First USA.
Maintaining realistic forecasts
"I am accountable for dictating realistic forecasts, and we will be diligent in 2000," Rosholt said.
Analysts who cover the company and who participated in the meeting were generally receptive to Bank One's efforts to turn itself around and be more open about its objectives, though some expressed concern that its approach to right itself may be a little too restrained.
"It appears you have bank management intent on turning around the credit-card operation, and that's a good thing, but their approach may be a little too conservative," said Kate Blecher, a banking analyst at Brown Brothers Harriman. "The call gave me more confidence but it's still in a state of flux."
She currently rates Bank One stock "neutral" and has a one-year earnings target of $2.80 -- exactly what Bank One itself expects to earn.
Return on equity, which measures the bank's success at providing stockholders with an appropriate return on interest and income, is expected to be around 17 percent this year,
Rosholt said. That should follow an increase in earnings of between 10 percent and 12 percent this year and a 5 percent to 8 percent increase in revenues.
First USA: Positive outlook
As for First USA, the bank expects returns on outstanding credit card loans to fall to 1 percent in 2000 from 2.5 percent in 1999 -- a figure that would reflect improved collections and fewer write-offs.
At the same time, the bank plans to reduce its spending on canvassing and approving new credit card applicants -- a move that will likely prompt Bank One's competitors to pick up potential First USA customers.
"It's going to be a boon for the other credit card issuers in terms of market share" because First USA is not focusing as much on building its client base, Blecher said. 
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Bank One
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