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Brazil Payments Fatten Chase, Hanover Profits

From Reuters

Chase Manhattan Corp. and Manufacturers Hanover Corp., benefiting from a stream of back interest payments from Brazil, reported Monday that their profits shot higher in the fourth quarter.

Chase Manhattan, the nation’s second-largest banking group, said its earnings nearly doubled to $275 million in the October-December quarter from $154 million in the year-ago period.

Manufacturers Hanover, ranked No. 7 in terms of assets, said its earnings jumped to $224 million from $23 million in the fourth quarter, helping the bank meet new capital requirements.

Besides the back payments from Brazil, which contributed $217 million after taxes to Chase and $146 million to Manufacturers Hanover, the banks reaped the benefits of further cost cuts, improved domestic loan quality and higher consulting and investment banking fees.

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Argentina Lags in Payments

Chase’s quarterly performance would have looked even stronger but for the fact that the bank took a $40-million restructuring charge connected with its previously announced decision to pull out of the British securities business.

Chase also used some of its Brazilian windfall to bolster its provision for possible loan losses by $200 million instead of the $50 million it normally sets aside each quarter.

Chase said its fourth-quarter earnings were reduced by $13 million because the bank was forced to put its Argentine loans on a non-accrual basis, meaning that income cannot be counted on the loans until it has actually come in. Argentina is nearly six months behind in its payments.

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Manufacturers Hanover said it forfeited $27 million in the fourth quarter after putting its Argentine loans on a non-accrual basis.

U.S. banks also are watching events in Brazil, where an economic crisis has raised the specter of another moratorium on that nation’s $115-billion foreign debt.

Brazil halted interest payments to its bank lenders in February, 1987, prompting U.S. banks to set aside billions of dollars that year to augment their loan-loss reserves. Last summer, Brazil and its commercial lenders struck a rescheduling accord under which the country received new loans and agreed to pay the back-interest it owed banks.

U.S. banking regulators, speaking before Congress earlier this month, told legislators that the U.S. industry was no longer as vulnerable to the Third World debt situation as it had been. The big banks have pared their costs, reduced their exposure in developing countries, sold assets and mapped their strategies carefully to increase their profitability.

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Goals Achieved

Chase’s full-year income totaled $1.06 billion, contrasted with an $895-million loss in 1987. Manufacturers Hanover’s 1988 profit came to $966 million, contrasted with a $1.14-billion loss the year before.

“The financial goals we articulated a year ago have been achieved and, in some cases, exceeded,” Manufacturers Hanover Chairman John F. McGillicuddy said in a statement. “Our common equity ratio of 4.30% is now higher than it was before the reserving action in June, 1987 (when it was 2.36%). In fact, our year-end numbers indicate that we currently meet the risk-based capital guidelines set to take effect in 1992.”

The guidelines, agreed to by the Federal Reserve and other major central banks last year, are designed to boost the safety and soundness of the global banking system.

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Chase’s common equity was 4.27% of assets at year-end, up from 3.24% a year earlier. Its assets slipped to $95.5 billion from $98.5 billion at the end of 1987.


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