First Chicago Expects Profitless Quarter
First Chicago Corp. said Monday that it will take over management of a Brazilian affiliate, Banco Denasa de Investimento S.A., and establish a $107-million reserve for the bank, which will effectively wipe out First Chicago’s second-quarter profits.
Barry F. Sullivan, chairman of First Chicago, said the corporation is expected only to break even in the quarter, which ends June 30, because the reserve will reduce earnings by $51 million after taxes. Second-quarter results are to be announced in mid-July, a spokesman said. In response to the action, Moody’s Investor Service, a leading New York-based debt-rating company, lowered its ratings on several classes of First Chicago’s debt.
First Chicago already wrote off its entire 44.5% investment in the Brazilian affiliate by taking a $15.3-million charge against first-quarter earnings.
The Brazilian investment bank has assets of $180 million, according to a statement from First Chicago.
First Chicago, which also is the parent company of First National Bank of Chicago, the nation’s ninth-largest bank, plans to increase its stake in the Brazilian bank, the corporation said.
First Chicago said that the majority shareholder of Denasa was unable to add additional capital to cover credit losses in its portfolio and that, under terms of its agreement with the shareholder and Brazilian authorities, First Chicago is taking over management of the bank.
The majority shareholder is Denasa Desenvolvimento Nacional S.A. Participacoes, a spokesman said.