Latest Bank, Thrift Earnings Reflect a Slowing Economy
More problems for the beleaguered bank and thrift industries surfaced on Tuesday as a new round of earnings results showed worsening commercial real estate problems at some banks and an overall slowdown in business because of the weakening national economy.
Great Western Financial and Citicorp reported sharp declines in third-quarter earnings, largely because of problem real estate loans in the East.
Golden West Financial, Wells Fargo, H. F. Ahmanson, First Interstate, Union Bank, Manufacturers Hanover and Sumitomo Bank of California reported improved third-quarter performances from a year earlier, but many of the results were tempered by signs of slowing business or trouble in some operations.
The results also show that the cooling off of California’s real estate market is starting to hit the bottom lines of some institutions. Most real estate problems for California banks to date have been on loans made in other states.
First Interstate Bancorp, for example, disclosed that it set aside $67.8 million--a three-fold increase from a year earlier--in its First Interstate Bank of California unit to cover possible losses on loans in the state. The Los Angeles-based firm also warned that softening real estate conditions in California “show no indication of reversal in the near future.”
Great Western Financial’s third-quarter earnings fell 46% to $37 million from $68.4 million a year earlier because of real estate problems outside California.
The Beverly Hills-based parent of Great Western Bank boosted by three-fold the amount of money it allocates for possible losses on real estate loans. Great Western said 70% of the $85 million that it set aside was for potential losses on two troubled hotel and office complexes on the East Coast, adding that its basic home-lending business in California remains relatively healthy despite slowing down.
Golden West Financial, the Oakland-based parent of World Savings, which is considered by many investors and analysts to be the nation’s best-managed thrift, saw its stock tumble $4.375 per share to close at $19.375--a plunge of nearly 20%--after disclosing a 3% profit increase, below expectations of many thrift analysts.
Golden West’s third-quarter profit rose to $43.1 million, with earnings from its basic business activity--mostly loans for single-family homes--rising 10%. The thrift allocated $4.5 million for possible losses on loans, compared to $639,000 a year earlier.
“This market is so nervous that any variation from expectation, no matter how minimal, is sending people into a frenzy,” Golden West Chairman Herbert O. Sandler said.
Wells Fargo, one of the nation’s top-performing banks, posted a 6% profit rise and showed no signs of significant problems in its portfolio of real estate or corporate buyout loans, which are the biggest concerns of investors.
But the increase was well below the profit jumps that the San Francisco-based bank usually posts. Company officials and securities analysts said growth in Wells Fargo’s loan volume is being affected by the weakening overall economy.
First Interstate reported a third-quarter profit of $155.4 million, compared to a loss of $15.5 million a year earlier, when it set aside money to deal with real estate troubles in Arizona. First Interstate’s results, which included $55.7 million in after-tax profits for the sale of its consumer finance subsidiary, showed improvements in its problem-plagued Arizona and Texas operations, but problems in California and Nevada.
Profit for its First Interstate of California unit fell 34% to $33 million. First Interstate’s Nevada unit showed a loss of $17.8 million as the bank set aside $50 million for possible loan losses, compared to $6 million a year earlier. Chief Financial Officer Thomas P. Marrie said the Nevada unit has been hurt by the cooling of that state’s once-sizzling economy.
One major exception to the bad news Tuesday was H. F. Ahmanson, the Los Angeles-based parent of Home Savings of America, the nation’s largest thrift. Its third-quarter earnings rose 25% to $61.3 million from $49.2 million a year earlier because of healthy growth in its basic operations, mainly home lending.
Union Bank, a San Francisco-based institution controlled by Bank of Tokyo, posted a 5% increase in profit to $37.3 million. Sumitomo Bank of California, also in San Francisco, reported third-quarter profit of $11.7 million, an increase of 31% from a year earlier, and said its commercial lending business remains healthy.
In New York, Citicorp reported a 38% drop in its quarterly profit to $221 million. Despite a growing volume of troubled loans in its commercial real estate and other portfolios, however, it left its stock dividend intact. The nation’s largest banking firm predicted that problems would extend into next year.
Another New York bank, Manufacturers Hanover Corp., said it made a $77-million profit, contrasted with a loss of $789 million a year earlier, when it set aside $950 million to cover potential losses from troubled loans to developing countries. The bank set aside $115 million against possible loan losses in the latest third quarter.
