Union Bank’s Earnings Slip in ‘87; U.S. Loan Portfolio Blamed

Union Bank, which has been buffeted for months by rumors of its pending sale, Friday reported a modest profit of $56.3 million for 1987.

The bank’s earnings were $200,000 less than in 1986. They remained relatively flat because of growing troubles with its loan portfolio, which is dominated by lending to medium-sized businesses and real estate developers in California.

In 1987, the bank set aside more than twice as much as it had the previous year to cover potential future loan losses--$103 million, compared to $50.4 million in 1986. Union also completely wrote off more loans than it had in 1986, $82 million, compared to $33 million. Both categories are key measures of the health of an institution’s lending.

Union is the state’s fifth-largest bank but, unlike many other big banks, it has virtually no foreign loans. Its problems stem from domestic customers who are having trouble making payments.

The continued problem with its commercial loans is believed by analysts to be one reason that its British owner, Standard Chartered, has been unable to get the price it wants to sell the Los Angeles bank.

The British company said last fall that Union was on the block as part of the parent’s efforts to raise capital to offset bad Third World loans. Reports have circulated in the press and banking circles since then that various suitors have talked with the British owners.

Recently, there have been reports that Bank of Tokyo has been negotiating with Standard Chartered. Wells Fargo has also been rumored to be interested. Spokesmen for all of the organizations have refused to comment. The rumored price is in the neighborhood of $800 million to $900 million.

Bank of Tokyo owns 77% of California First Bank, the state’s sixth-largest bank. Union has a large clientele among middle-sized businesses in Southern California, which would complement California First’s strength in Northern California. Wells Fargo, the state’s third-largest bank, would also benefit from Union’s customer base.

A Union Bank spokeswoman said Standard Chartered hopes to make a deal to sell Union by mid-March, before the company is required to release its 1987 earnings in Britain. The sale would add a positive note to what British analysts expect to be a dreary earnings report.

Last month, Standard Chartered said it had reached an agreement to sell United Bank of Arizona to Citicorp. United and Union Bank comprise Union Bancorp, a holding company, and a spokeswoman said the sale has delayed release of overall figures for the holding company.

Fourth-quarter figures for Union Bank showed net earnings of $17.7 million, compared to $17.2 million in the same period a year earlier.

Slight increases in income during 1987 were offset somewhat by increases in costs for staff and other overhead, which rose 2% for the year. The bank ended 1987 with 4,400 employees, compared to 4,500 in 1986. Another 200 jobs have been lost so far this year through 110 layoffs and not filling 90 vacancies.

The biggest impact on earnings, however, was the provision for troubled loans. In addition to more than doubling that amount, there was another sign of loan troubles. Total non-performing loans, which includes loans on which payments are 90 days past due, increased more than 25% in 1987.

At the end of the year, Union reported $280.1 million in non-performing assets, compared to $220.9 million at the end of 1986. At year end, Union reported assets of $9.1 billion, down from $9.5 billion a year earlier. The decrease was chiefly the result of a $900-million drop in deposits during the year.