BankAmerica Reports ’87 Loss of $955 Million : 4th-Quarter Picture Is Significantly Improved
BankAmerica reported a loss of $955 million for 1987 on Thursday, the third consecutive year of red ink and the biggest loss in its history.
The nation’s third-largest banking company and parent of California’s largest bank attributed the loss to $1.1 billion set aside earlier in the year to cover its shaky Third World debt.
Statistics released by the San Francisco-based company showed signs of progress in reversing its slide, however, including a profit for the second consecutive quarter and success in reducing bad loans.
But there also were indications that BankAmerica will lay off more workers in 1988 and that the company has failed to solve an embarrassing computer problem in its trust department.
The full-year loss was not as severe as the $1.138 billion reported Tuesday by Citicorp, the nation’s largest bank. But Citicorp had reserved $3 billion for troubled loans. Chase Manhattan, the second-largest bank, lost $895 million last year as a result of reserves totaling $1.6 billion.
BankAmerica lost $337 million in 1985 and $518 million in 1986. Analysts generally believe that BankAmerica and its chief subsidiary, Bank of America, have a tougher task in restoring profitability than other big banks.
Profit Up in Quarter
“I think you are seeing genuine, steady improvement here,” said Dan B. Williams, an analyst with the San Francisco brokerage of Sutro & Co. “Slow but steady.”
Fourth-quarter net income was $60 million, up from $54 million in the third quarter but down from the $82 million of the fourth quarter in 1986. The 1986 figure, however, was not a realistic indicator of earnings because it resulted from one-time gains from the sale of assets.
Since the end of 1986, BankAmerica’s assets have shrunk to $93 billion from $104 billion and the company has dropped from second to third in size among American banking firms.
The fourth-quarter 1987 income reflected $87 million in one-time after-tax gains from the sale of assets, chiefly its interest in a Geneva bank, but there were also real operating profits in the period, according to analysts.
Fundamental earnings in the fourth quarter were about $100 million, a significant improvement over the comparable figure of $45 million in the third quarter. The fundamental earnings, as opposed to net income, are determined by subtracting such things as one-time gains from the sale of assets from net income and adding back one-time costs, such as $100 million in restructuring charges.
Part of the $100-million restructuring charge for the quarter was $69 million to cover the costs of layoffs in 1988, the bank said, without giving details. Published reports indicating that the cuts could range from 3,000 to 5,000 people were discounted by analysts as speculation.
Since the October stock market crash, most of the nation’s big banks have announced job cuts. But BankAmerica has been cutting back on staff for two years.
The company cut 9,600 jobs in 1986 and 9,000 in 1987, leaving a staff of 59,500 at the end of 1987. Many of the cuts have come from the sale of assets, including 3,000 jobs at its Italian bank and 1,600 in the sale of its discount brokerage, Charles Schwab & Co.
Analysts believe that BankAmerica remains overstaffed and that its overall expenses are higher than those of comparable banks.
“BankAmerica has two chief problems, high expenses and poor asset qualities,” said Paul H. Baastad, an analyst in San Francisco with the securities firm of S. G. Warburg. “Two things were better than expected in the fourth quarter. Loan losses fell to $128 million, a sharp decline from the third quarter, and nonperforming assets fell sharply.”
The level of loans written off as total losses is an important measure of the quality of a bank’s portfolio. BankAmerica’s net loan chargeoffs have declined from a high of $403 million in the third quarter of 1986 to the $128 million reported for last quarter.
“The underlying quality of our loans has improved and we have already taken a lot of the losses that will be necessary,” Frank N. Newman, the company’s chief financial officer, said.
In addition, the volume of troubled loans--those that are not written off as losses but that pose potential problems or on which payments are not being kept up--decreased for the third consecutive quarter. The category would have shown improvement for the year except for the addition of $1.6 billion in loans to Brazil and Ecuador in the first quarter.
Less positive and something of a surprise to analysts was the disclosure that the company had set aside another $35 million to cover anticipated costs in fixing the computer system that handles trust accounts for institutional customers.
The problem in converting to the computerized accounting system surfaced last July when the company reserved $25 million to pay for fixing the system.
But problems have persisted, angering customers and forcing two top executives to quit late last year.
Newman said the company was “upset” at having to set aside more money to pay for the problem and he acknowledged that some customers have left the bank.
“We have made a tremendous amount of progress and we think we know about what needs to be done to finish it,” he said. “But it will take well into the first half of the year.”
He said the $60-million total reserves will cover “all known expenses” connected with the computer problem.
