Wells Fargo’s Earnings Improve for Quarter : Consumer Banking Unit Shines at Citicorp; : Other Major Bank Firms Also Report Increases
Wells Fargo said Tuesday that its earnings in the second quarter were slightly better than in the first quarter and that it had showed continued improvement in reducing bad loans.
Like all major banking companies, Wells Fargo’s earnings of $124.4 million in the quarter were a sharp improvement over the same period last year when the company lost $293.7 million as a result of increasing its reserves for loans to Latin America.
Citicorp, the nation’s largest banking company, said Tuesday that it earned $359 million in the second quarter, little changed from the first quarter but slightly better than industry analysts had anticipated.
Citicorp, based in New York, lost a record $2.6 billion in the second quarter of 1987 as a result of setting aside $3 billion to cover troubled loans to developing countries. Its action last year triggered similar responses from the other big banks, including Wells Fargo.
In the second quarter of this year, Citicorp reported strong earnings in its consumer banking division, led by growth in its credit-card business and sharply lower profit from securities transactions.
Losses From Real Estate
Pittsburgh’s Mellon Bank and Irving Bank in New York also reported improved results over last year on Tuesday.
A dramatic exception to the upswing from a year ago was First RepublicBank in Dallas, where the books went from bad to worse with a whopping loss of $758 million for the quarter. The loss came on top of a $1.5-billion loss in the first quarter and exceeded the $313 million lost in the second quarter of 1987.
The chief reason for the losses is the continuing deterioration of Texas real estate, said the bank, including land used as collateral for loans and land owned by the bank already through foreclosure.
During the quarter, First RepublicBank set aside $508 million for potential future loan losses and recorded losses of $178.4 million on loans. The nation’s 13th-largest bank is being kept afloat with a $1 billion loan from the Federal Deposit Insurance Corp. while several plans are considered for its long-term recapitalization. Among the institutions that have studied the possible acquisition of the bank are Wells Fargo and Citicorp.
Earnings at San Francisco’s Wells Fargo were a little better than analysts expected. The $124.4 million was slightly higher than the first-quarter figure of $120.4 million. Two key measures of performance, return on assets and return on equity, were essentially unchanged from the previous quarter. But they were better than in the second quarter of 1987 after adjustments for the loan-loss reserves.
Wells Fargo, the third-largest banking company in California and 11th in the nation, said its quarterly earnings were aided by market conditions in the state that helped boost net interest income, which is the difference between what the bank collects on loans and pays out on deposits.
The most impressive results posted by Wells Fargo were not in earnings but in continued improvement in loan quality, according to Donald K. Crowley, an analyst in the San Francisco office of Keefe Bruyette & Woods, an investment firm specializing in banks.
Sales and Writeoffs
Crowley pointed chiefly to a significant reduction in non-performing loans, the category for loans on which payments are 90 days or more past due. As a percentage of total loans, the non-performers declined to 3.6% from 4.2% in the previous quarter and 4.6% a year ago.
The bulk of the reduction came from the removal of $340 million in Latin American debt from the books through writeoffs and the sale of loans at below their face value. The sales and writeoffs resulted in a loss on the loans of $107.9 million, which was charged against the $550 million in reserves set aside a year ago.
Wells Fargo said it now has $1.27 billion in troubled loans to Latin American countries, and analysts anticipate that the company will get rid of more of that before the end of the year.
Mellon Bank, the nation’s 16th-largest banking company, reported earnings for the quarter of $28 million, up slightly from the first-quarter figure and a dramatic improvement over the year-earlier period.
Irving Bank, which has been fending off a hostile takeover bid by Bank of New York, said its earnings for the second quarter were a record $169.9 million, tripling the first quarter’s results. The earnings were boosted by the sale of its 39% interest in a Swiss bank, but the results were 12% better than in the first quarter, even after deducting the benefits of the sale.
California First Gains
California First Bank in San Francisco reported earnings of $12.1 million in the second quarter, an increase of $2.6 million over the same period a year ago. Seishichi Itoh, president and chief executive, said the improvement was largely the result of improved net interest income and reduced provisions for loan losses.
California First, which is controlled by Japan’s Bank of Tokyo, expects to close its $750-million purchase of Union Bank in Los Angeles soon.
Sumitomo Bank of California said its income for the quarter rose to $5.83 million from $5 million in the like period a year ago. The San Francisco bank is a subsidiary of Sumitomo Bank of Osaka, Japan, the world’s second-largest bank.
