BankAmerica on Thursday reported a $190-million profit for the third quarter, demonstrating a faster recovery than expected from the record losses that it suffered in recent years.
The latest quarterly profit is more than three times the modest $54 million the San Francisco-based bank holding company made during the third quarter last year that started the recovery from an 18-month hemorrhage of red ink. BankAmerica, the parent of Bank of America, has now had five consecutive profitable quarters--each showing marked improvement. “The company is still recovering. But most everyone is now convinced that the turn has taken place, that it is genuine and that there is every reason to believe that it will continue " said Dan B. Williams, an analyst with the San Francisco brokerage Sutro & Co.
The net profit benefited from a $45-million tax credit, Williams said, but even without that factor, the profit is still “an indication of a bank in solid recovery.”
The strong showing in the latest quarter is “outstanding,” said Thomas K. Brown, a managing director at New York’s Smith Barney, Harris Upham & Co. “The recovery continues to proceed faster than all of us thought,” he said, citing an improvement during the quarter in BankAmerica’s credit quality and capital base. “The biggest surprise this year has been the revenue growth.”
BankAmerica Chairman A. W. Clausen said the banking company’s increased profitability was due to improvements in three key areas, including growth in domestic net interest income, further reductions in operating expenses and low levels of credit losses. The progress has helped the company strengthen its capital base, setting the stage for growth in profitable areas of its banking business, he added.
The latest quarter improvement occurred in spite of BankAmerica’s decision to follow other money center banks and put $394 million of its $492 million of Argentine government non-trade loans on non-accrual status because the Latin American country had fallen more than three months behind in its payments. The move reduced net interest income by $15 million and net income by $14 million, the company said.
The company took a $15-million charge for reversing previously accrued, but not received, interest from Argentina. Additionally, its net interest income was reduced by $9 million because the Argentine loans didn’t accrue interest in the latest quarter, BankAmerica said.
The company said those charges were partly offset by a net gain of $17 million, resulting from an $18-million reduction in non-interest expenses from reserves previously established for legal costs that ultimately were unnecessary.
Interest Income Deferred
BankAmerica said its net interest income for the third quarter rose to $842 million, up $77 million from interest income in the third quarter last year.
BankAmerica said it has received $180 million in the last year from Brazil on that nation’s medium- and long-term debts. The interest payments, including $60 million in the third quarter, were not recognized as interest income, but were deferred pending the rescheduling of Brazilian debts, the company said.
If the restructuring is completed during the fourth quarter, those payments, plus about $140 million in interest payments scheduled to be received from Brazil before the end of the year, will be included in fourth-quarter interest income, the company said.
BankAmerica’s significant loan exposure in developing countries still presents some risk for the company, Williams said. The risk is reduced, he said, “as long as the world economy behaves itself, but the risk isn’t going away for the large multinational banks.”