Earnings Reflect Rough Year for Big Banks : Citicorp, Wells Fargo Are Among the Few to Post Gains in 4th Quarter

A number of the nation’s big banks Tuesday reported mixed performances for the fourth quarter, with Citicorp and Wells Fargo posting significant gains in the period, while Security Pacific and Pittsburgh’s Mellon Bank recorded losses.

With quarterly and year-end earnings reports coming in this week, the overall picture for the banking industry reflects the turmoil of the stock markets and the impact of huge reserves the banks have set aside to cover troubled loans to Latin America. Few of the nation’s largest banks are expected to show a profit for the full year, and many are reporting historic losses.

Citicorp, the nation’s largest bank, reported Tuesday that its loss for 1987 was $1.138 billion, contrasted with a profit of $1.058 billion in 1986.

Citicorp said the figure is somewhat worse than expected because of a fourth-quarter loss in securities trading. But the biggest factor was the $3 billion the company set aside in the second quarter to cover potential losses on Third World loans.

Citicorp’s action in May forced most of the nation’s other banks to follow suit and add to their loan-loss reserves for the second quarter, which resulted in a loss of $5.4 billion for the nation’s banks in the first six months of the year, according to Sheshunoff Rating Services in Austin, Tex.

Picture Improves

Despite the stock market turmoil in October, the second half was better for most big banks.

Citicorp, for instance, reported fourth-quarter income of $642 million, more than double its income of $306 million in the same period of 1986. The sale of an interest in its New York headquarters complex contributed $283 million to the quarter’s earnings.

The bank also was able to show a healthy fourth quarter because it did not join a second round of additions to loan-loss reserves during the period.

Among those announcing fourth-quarter additions in recent days were three of the four biggest in California--Security Pacific, Wells Fargo and First Interstate. Bank of America, the state’s largest bank and the nation’s third largest, has not indicated its plan yet.

In its earnings release Tuesday, Wells Fargo, the nation’s 10th-largest bank company, reported fourth-quarter net income of $111.2 million, a gain of 42% over the $78.4 million in the same period in 1986.

The San Francisco-based bank’s increase came even though it added another $39 million to its reserves for loans to developing countries in the quarter. Counting a $550-million addition in the second quarter, the step brought reserves to 50% of its $1.7 billion in Third World loans.

Expenses for staff, equipment and other expenses in the quarter declined 6% from the same period in 1986. Credit quality also appeared to be moving in the right direction. Loan losses, at $56.6 million, were almost 25% lower than in the fourth quarter of 1986 and a slight improvement over the third quarter of 1987.

For the full year, net income was $50.8 million at Wells, down 81% from the 1986 figure of $273.5 million, chiefly the result of the additions to loan-loss reserves. Wells said net income for 1987 would have been $382.6 million without the additions to reserves, a 40% improvement over 1986.

Wells was one of the few big banks that was able to make a second round of additions and remain profitable for the year.

Security Pacific posted a net loss of $39.4 million for the fourth quarter on Tuesday, contrasted with net income of $124.3 million in the same quarter a year earlier. The Los Angeles-based bank added $350 million to its reserves for Third World loans, bringing its total coverage to 54%. Security Pacific had added $558 million in the second quarter.

Security Pacific in Black

Security Pacific, the nation’s seventh-largest banking company, remained slightly in the black for the year, recording net income of $15.7 million in 1987. It was far below 1986’s record $455.1 million net income.

Without the additions to reserves, Security Pacific said, its net income for 1987 would have been $518.3 million, a 14% increase over 1986.

First Interstate, the nation’s ninth-largest banking company, said last week that it had added $180 million to its loan-loss reserves in the fourth quarter, bringing reserves to 53% of Third World loans. The company said it anticipates a loss of $95 million for the period and about $556 million for the year when earnings are released later this week.

First Chicago Corp. added $240 million to its reserve for troubled foreign loans on Monday, raising its level to 56%. The nation’s 11th-largest bank reported a loss of $96.5 million for the quarter, contrasted with a profit of $64.2 million in the period a year earlier. Its loss for the full year was $570.7 million, contrasted with 1986 earnings of $249.2 million.

On Tuesday, Chase Manhattan, the nation’s second-largest bank, reported that fourth-quarter income slipped to $154 million from $158 million a year earlier. For the year, it reported an $895-million loss, due largely to a $1.6-billion reserve addition in the second quarter. In 1986, the bank had a profit of $585 million.

Morgan Annual Profit Skids

J. P. Morgan, the nation’s fifth-largest bank, said its income rose to $224.1 million in the fourth quarter, an 18% gain over the year-earlier period. Morgan posted a full-year profit of $83.3 million, down sharply from $872.5 million in the previous year.

Morgan, which increased its reserves against Third World debt to 25% in the second quarter, did not join the banks making a second round of additions. In the second quarter, it added $875 million to its provision for shaky Third World loans.

Manufacturers Hanover, the No. 6 bank, reported that its fourth-quarter income was $22.7 million, down sharply from $75.4 million in the same period last year. The reduction was blamed on $117 million in restructuring costs associated with the closing of some domestic offices and eliminating 2,500 jobs.

For the full year, Manufacturers Hanover reported a net loss of $1.14 billion, which reflected the effect of its $1.7-billion addition to reserves in the second quarter.

Mellon, the Pittsburgh bank whose longstanding loan problems led to a management shake-up last year, said it lost $234 million in the fourth quarter, contrasted with $15 million in income for the period in 1986. For the year, the 14th-largest bank lost $844 million, contrasted with a profit of $183 million the previous year.

Among smaller California banks, California First Bank reported net income of $40.1 million for 1987, an increase of 30.6% over 1986. Fourth-quarter income totaled $12 million, an increase of 44% from the year-earlier period. California First is the state’s sixth-largest bank and the nation’s 57th largest.

BANK RESULTS AT A GLANCE Here are the 1987 full-year earnings of some of the nation’s largest bank holding companies that had reported as of Tuesday. Not all banks have reported yet.

BANK RANK ’87 PROFIT (LOSS) ’86 PROFIT (LOSS) Citicorp 1 ($1.138 billion) $1.058 billion Chase Manhattan 2 ($895 million) $585 million Chemical 4 ($853.7 million) $402.4 million J.P. Morgan 5 $83.3 million $872.5 million Manufacturers Hanover 6 ($1.14 billion) $377.2 million Security Pacific 7 $15.7 million $455.1 million Wells Fargo 10 $50.8 million $273.5 million First Chicago 11 ($570.7 million) $249.2 million Mellon 14 ($844 million) $183 million