Foreign Loans Cited : B of A Earnings Beat Expectations, but Clouds Persist

BankAmerica continued to record progress in its apparent recovery Thursday, reporting a second-quarter increase in profitability that exceeded most expectations.

The San Francisco-based banking giant said net earnings for the three months ending June 30 were $162 million. It was the most profitable quarter so far in a string of four consecutive periods in the black.

“We can’t call it a great quarter, but it’s better,” said A. W. Clausen, chairman and chief executive of BankAmerica, the nation’s third-largest banking company and parent of Bank of America, California’s largest bank.

The company still faces numerous problems, ranging from its high level of troubled foreign loans to its attempt to regain lost market share in the California banking market.

The return on average assets, or ROA, for the quarter, a primary indicator of operating efficiency, was 0.69%, up from the previous quarter’s 0.46% but still below average and a cause of concern to Clausen. Rival Wells Fargo had a second-quarter ROA of 1.12%, which placed it among the three or four most profitable major banks in the nation.

“The ROA is still bad,” he said flatly in an interview.

But the earnings figure was dramatically better than that for the second quarter a year ago, when B of A lost $1.14 billion after adding $1.1 billion to its reserves against troubled loans to Third World countries. And it was better than in the first quarter of 1988, when the bank earned $109 million.

The figure was also higher than the $130 million or so in earnings that most industry analysts had been expecting.

Part of the surprising increase in earnings came from a healthy boost in income from interest payments, which rose to $810 million from $779 million in the first quarter. B of A said it benefited from an improved margin between what it paid for funds and what it received in interest and from a $1.7-billion increase in loan volume.

The increase in loan volume was significant because it marked some success for the bank’s aggressive marketing efforts in California, where it has been concentrating in recent months while trimming its international operations.

Part of the increase in earnings was the result of a one-time, $46-million payment to the company’s Seafirst banking unit in Seattle as a result of the settlement of a lawsuit. But that figure was partially offset by a one-time loss of $26 million from the cost of disposing of some of BankAmerica’s foreign operations.

The bank reported continued improvement in the quality of its loan portfolio. Net credit losses were only $22 million, the seventh consecutive quarter in which the figure has declined. The bank wrote off $163 million in loans as losses in the period but recovered $141 million from loans previously written off, resulting in the $22-million net loss figure.

Big Job Cuts Since ’83

In the first quarter of 1988, the net was $92 million, reflecting $186 million in losses and $94 million in recoveries.

The picture was not so bright on cutting non-interest expenses, which include costs for personnel, premises and equipment. The total for the quarter was $934 million, compared to $933 million in the first quarter.

The expenses remained flat despite a rigorous cost-cutting campaign that eliminated another 2,000 jobs in the second quarter. The bank has cut 32,000 jobs since 1983, largely through the sale of operations. Clausen said he “would not be surprised” by additional job cutbacks before the end of the year.

He said most of them will come through the elimination of additional foreign affiliates and vowed that there would be no big layoffs.

The corporation’s asset level remained at $94.3 billion, the same as at the end of the first quarter and $2.6 billion less than at the end of the second quarter in 1987.

In the interview, Clausen refused to say when the company will resume paying dividends to common stockholders. But Salomon Bros., the New York investment house that often handles deals for B of A, predicted that a 10-cent dividend will be restored during the last quarter of the year.