B of A Profit Up in Strong Show for 1st Quarter : Gain Signals Recovery for California Company, Some Bank Analysts Say
BankAmerica showed its strongest signs yet of a sustained recovery Thursday, reporting a solid profit for the first three months of 1988 and improvement in ridding itself of bad loans.
The California banking giant, which has suffered three years of record losses, posted its third straight quarter of operating profitability. The company said net earnings were $109 million for the period, up from $60 million in the last quarter of 1987 and from $67 million in the first quarter of last year.
Some bank-stock analysts viewed the first-quarter figures as a clear signal that the parent of Bank of America has rebounded from the problems that pushed it to the brink of collapse.
“After seeing what I have seen the last two quarters at BankAmerica, I think this is the greatest turnaround ever witnessed in the U.S. banking industry,” said Thomas K. Brown, a managing director at the New York investment house of Smith Barney, Harris Upham & Co.
Outlook Is Positive
Frank N. Newman, the bank’s vice chairman and chief financial officer, was less dramatic, though also upbeat, in his assessment of the performance. He told reporters at a briefing that BankAmerica should now be referred to as “progressing” or “recovering,” rather than troubled.
The press briefing at BankAmerica headquarters here was far less combative than recent sessions, perhaps another sign of progress. Newman, who joined BankAmerica from Wells Fargo in October, 1986, was relaxed as he outlined the quarter’s data for reporters.
In previous years, the bank’s losses soared from $337 million in 1985 to $518 million in 1986 and $955 million last year. During that period, the bank fired its chief executive, Samuel H. Armacost, and brought former Chairman A. W. Clausen out of retirement to guide the bank toward recovery.
Analysts believe the bank is headed toward a year of profits in 1988. The bank benefited dramatically during the first quarter from sharp improvements in such key areas as loan quality and controlling operating expenses, according to the company’s figures.
Non-performing loans, those which are not paying interest, fell for the fourth consecutive quarter. The total value of troubled loans was down 5.5% from the end of the fourth quarter of last year and dropped about 27% from the first quarter of 1987. However, the total remained huge--$3.96 billion, which is more than 8% of all of the bank’s loans.
The bank said the drop in troubled loans would have been even greater had it not added $123 million in loans to the Panamanian government to its non-performing rolls.
“We have already cleaned out and charged off the worst of our . . . (non-performing) loans,” Newman said.
Another measure of loan quality is how much a bank writes off in loan losses, and this figure showed improvement at BankAmerica for the sixth quarter in a row. Net loan losses were $92 million for the first quarter, compared to $128 million in the fourth quarter of last year and $315 million in the year-earlier period.
BankAmerica has been stripping away frills and cutting jobs for more than two years, and the dividends are beginning to show on the bottom line. After adjustment for one-time costs, operating expenses were down $31 million in the quarter, compared to the fourth quarter of last year, and were $100 million less than in the first quarter of 1987.
18,600 Jobs Cut
Most of the dramatic change from a year ago was the result of the elimination of jobs and overhead through the sale of assets. But the change from the fourth quarter represented cuts not related to the sale of any major asset and included the elimination of 1,500 more jobs.
BankAmerica cut 9,600 jobs in 1986 and 9,000 last year, and company sources have said that as many as 5,000 more could be trimmed this year.
“The first quarter of 1988 shows a persuasive improvement over the fourth-quarter numbers,” said Paul H. Baastad, an analyst in the San Francisco office of S. G. Warburg, a New York securities firm.
He said bank officials told analysts Thursday morning that they anticipated additional reductions in operating expenses throughout 1988, but bank officials declined to comment on plans for additional layoffs.
Net interest income, the difference between what the bank took in on loans and paid out on deposits, was essentially flat for the quarter compared to the previous quarter. The total was $779 million, contrasted with $800 million in the fourth quarter of last year; the decline was chiefly attributed to a $20-million accounting change.
Wall Street’s reaction to the earnings report was mild. BankAmerica’s stock, which has been rising gradually in recent weeks, was up 12.5 cents to close at $10.50 on the New York Stock Exchange.
Newman refused to speculate on when the company would resume paying a dividend on its common stock.
“Clearly, the criteria are continued earnings performance and the rebuilding of our capital base,” he said. “There is no magic formula. It’s a question of judgment.”
He said BankAmerica’s effort to rebuild its loss-ravaged capital base will rely on retaining future earnings and continuing to sell stock to shareholders and employees under existing plans. He said that such plans, which provide a discount to buyers, brought in $40 million in fresh capital in the first quarter.
Brown, the Smith Barney analyst, said he looks for strong earnings from the bank throughout 1988. But he said one of the tasks confronting management is improving revenue.
“Now, less attention has got to be paid to fixing the problems and more attention must be focused on generating revenue growth,” said Brown.
BankAmerica’s total assets climbed to $94.3 billion at the end of the first quarter from $92.8 billion at the end of 1987. Newman said the bank, which dropped from No. 2 to No. 3 in the nation last year in terms of asset size, does not expect a significant decline in assets this year. He said there may even be some growth.
Victor Zonana reported from San Francisco and Douglas Frantz from Los Angeles.
