Security Pacific, 2 Other Big Banks Post Hefty Losses : Banking: Among other big institutions, Wells Fargo’s profit declined. But First Interstate and Sumitomo Bank of California enjoyed gains.
More bad news came Tuesday for the nation’s banks--including some in California--as many of the nation’s major institutions posted big fourth-quarter losses or drops in earnings. Most of the difficulties for the banks stem from growing problems with loans used to finance commercial real estate projects and corporate buyouts.
Citicorp, Security Pacific Corp. and Manufacturers Hanover Corp. all posted large losses. Wells Fargo & Co. posted its first quarterly earnings drop since 1987 while disclosing a sharp, 30% increase in loans that are 90 days or more past due. Chemical Bank posted a big drop in earnings.
But struggling First Interstate Bancorp’s earnings continued to improve, as did the profits for Columbus, Ohio-based Banc One, one of the nation’s top regional banks, and Sumitomo Bank of California in San Francisco.
Wells Fargo’s stock tumbled $2.50 a share to $49.75, one of the biggest drops among major banks, as it disclosed sizable increases in the amount of corporate buyout and real estate loans 90 days or more past due or where the ability to collect is in doubt. Wells Fargo’s troubled loans now total $1 billion, compared to $774.4 million on Sept. 30.
The San Francisco bank’s fourth-quarter drop in profit--to $156.7 million from $158.5 million a year earlier--is the first quarterly downturn since the bank devalued its foreign loans in 1987. Corporate buyout loans that are 90 days past due rose 23% to $356 million. Problem real estate loans--mostly loans secured by real estate in which a building is less than 75% leased--jumped 29% to $365.8 million total.
A Wells Fargo spokeswoman downplayed the drop in earnings, noting that profits would have increased slightly had the bank not incurred costs related to its acquisition of 92 California branches of Great American Bank in San Diego.
Wells so far has foiled doomsayers who long ago predicted that it would run into big problems because it has made so many real estate and corporate buyout loans, which are considered to be riskier than many other types of loans. For 1990, Wells Fargo’s earnings rose 18% to $711.5 million. Despite its current problems, Wells Fargo’s indicators of profitability and problem loans still are much healthier than those of many other banks across the country.
In addition, Wells Fargo said officials with the Comptroller of the Currency’s Office--considered to be tough banking regulators--reviewed its real estate portfolio in the fourth quarter. Securities analysts said the disclosure was a sign that regulators did not find big problems because the earnings drop would have been much worse.
First Interstate’s quarterly profit of $91 million contrasted with a huge, $344.3-million loss a year earlier caused mostly by problems in its Texas unit. For all of 1990, the Los Angeles banking firm made a $468.7 million profit, aided by the sale of some assets, contrasted with a loss of $124.5 million in 1989.
Despite the improved performance, First Interstate Chief Executive Edward M. Carson predicted that the bank’s performance in 1991 would not meet 1990’s levels. Carson cited such factors as the softening economy, slowing loan demand, the softer California real estate market, increased problems in Nevada and a slowing of the once-torrid growth rates in the Pacific Northwest.
As expected, Security Pacific and Citicorp posted big losses that executives had effectively disclosed last month.
Security Pacific’s fourth-quarter loss of $357.6 million was in line with a projection it made in mid-December, albeit on the high side. The Los Angeles bank, which posted a profit of $191.7 million a year earlier, is suffering from problem loans in Australia and Arizona and from costs associated with dismantling its investment banking-style operations. For the year, Security Pacific earned $161.3 million, down from $740.6 million a year earlier.
Citicorp’s loss of $382 million came after the New York banking giant set aside $450 million to cover the potential costs of writing off bad loans. It also charged $300 million to its income to cover the cost of cutting 8,000 jobs, 3,600 of which have already been trimmed.
For the year, Citicorp reported earnings of $458 million, down slightly from $498 million in 1989. As expected, Citicorp’s board also cut the bank’s quarterly dividend to 25 cents a share from 44.5 cents.
Chemical Bank’s fourth-quarter profit dropped 27% to $70.1 million because of increasing real estate problems in New York and New Jersey. Manufacturers Hanover Corp. lost $67 million in the fourth quarter, contrasted with a profit of $62 million a year earlier, because of problems with loans used to finance real estate projects and takeovers. The New York bank also slashed its quarterly dividend to 47 cents a share from 82 cents.
Elsewhere, Banc One’s quarterly earnings rose 6.4% to $109 million. Sumitomo Bank of California continued to post strong results, with fourth-quarter profit for the San Francisco bank rising 32% to 12.3 million.
Bank’s Fourth-Quarter Earnings Fourth quarter, 1990 Wells Fargo: $156.7 First Interstate: $91.0 Security Pacific: -$357.6 Fourth quarter, 1989 Wells Fargo: $158.5 First Interstate: -$344.3 Security Pacific: $191.7
