B of A Nets $65 Million in Quarter; Operating Losses Still Plague Firm
BankAmerica on Thursday reported third-quarter profits of $65 million, but the figure masks a sizable operating loss caused by continuing problems with bad loans. A multimillion-dollar loss for the full year at the nation’s largest bank now appears inevitable.
The holding company for Bank of America was able to achieve a third-quarter profit only because of the sale of its San Francisco headquarters for a one-time pretax gain of $310 million. Without the gain from the building sale, BankAmerica would have shown a pretax loss of $158 million.
The bank lost $338 million in the second quarter, the second-largest quarterly loss in U.S. banking history. It is plagued by high operating costs and staggering loan losses.
“Our results continue to be depressed by the high level of loan losses in the four sectors we’ve identified in the past . . . the foreign, shipping, commercial real estate and agricultural sectors of the economy,” said BankAmerica President and Chief Executive Samuel H. Armacost. “They continue to be hampered by disinflation, the relatively high value of the U.S. dollar, depressed trade levels and an uneven recovery.”
Maintained Interest Margin
He said the company maintained its interest margin--the difference between what it pays for money and what it charges borrowers--and has increased its income from loan fees, securities trading and foreign exchange activities.
B of A charged off $470 million in bad loans in the third quarter, up from $250 million a year ago. It set aside $488 million to cover future losses, bringing its loan-loss reserve to $1.59 billion, compared to $562 million on Sept. 30, 1984.
The bank’s ratio of loan losses to total loans stood at 2.23% at the end of September, a rate nearly four times the industry average.
Bank analyst Lawrence W. Cohn of Dean Witter Reynolds said: “Everybody expected an operating loss, but nobody expected one this large. What’s discouraging in all this is that, no matter how you read these numbers, there’s no sign of a turnaround.”
Don Crowley, an industry analyst at the investment firm of Keefe, Bruyette & Woods, called B of A’s third-quarter results “disappointing but not disastrous.” He predicted that the bank would lose about $30 million for all of 1985.
“They’re making a concerted effort to clean house, but there seems to be a continual flow of problems coming out of the woodwork,” Crowley said.
Shareholders’ Equity Off
Total assets as of Sept. 30 were $120.9 billion, up slightly from a year ago, but shareholders’ equity fell $396 million to $4.8 billion, reflecting a reduction in retained earnings and a preferred stock adjustment. The bank’s primary capital--equity plus loan-loss reserves and certain debt issues--equaled 6.01% of average assets, exceeding federal regulatory targets.
The bank is undergoing a significant restructuring aimed at reducing overhead and duplication of services. BankAmerica recently announced that it was reducing employment in its world banking division by 2,000 persons and would continue to close unneeded offices in California and elsewhere around the world.
Armacost noted that the bank was selling units that didn’t fit the current business plan, such as FinanceAmerica, a consumer and commercial finance company sold to Chrysler this month for $405 million. The gain from that transaction will be posted in the fourth quarter.
The bank also is seeking a buyer for its Los Angeles headquarters and other unspecified assets.
