BankAmerica Reports Strong Post-Merger Profit : Earnings: The corporation’s net income of $240 million was better than banking analysts expected.
In its first earnings report since its April 22 merger with Security Pacific Corp., BankAmerica Corp. on Monday reported surprisingly strong second-quarter net income of $240 million.
Banking analysts termed the results better than expected, but cautioned that the complex earnings report raised many questions and said it is too early to determine if the merger is succeeding. They noted particularly that the weak California economy continues to be a wild card that could yet deal setbacks to the combined banking company’s loan portfolio.
“I think there are still a lot of questions, but overall the numbers look better than I expected,” said John D. Leonard, senior banking analyst with Salomon Bros., a New York investment firm.
Investors responded favorably, sending the price of BankAmerica stock higher by $2.875 a share, to $44.375, on the New York Stock Exchange.
For the second quarter ended June 30, results for the giant San Francisco-based institution--now the nation’s second-largest banking company, with assets of $188.6 billion--were dampened by a one-time net charge of $181 million to cover costs relating to the merger. Without that, the company would have reported net income of $421 million.
In the same period the year before, BankAmerica on its own reported earnings of $272 million, but because of the merger the results are not comparable with those reported Monday.
Richard M. Rosenberg, chairman and chief executive, said in a statement that the company was pleased with ongoing efforts to integrate the two organizations. But he also alluded to widespread concerns on Wall Street that problem real estate loans, primarily from Security Pacific, could haunt future earnings.
“We continue to focus substantial effort on credit quality, especially in light of the current difficult economic environment,” he said.
For the second quarter, BankAmerica set aside an additional $240 million for possible loan losses. Donald K. Crowley, an analyst with Keefe, Bruyette & Woods in San Francisco, said the additional set-aside figure was far lower than the $320 million he had anticipated--a sign of strength of BankAmerica’s credit quality.
But the bank was able to reduce its overall loan-loss reserve by $483 million to $4.5 billion by an accounting maneuver. The bank has moved some of those troubled assets into a new subsidiary that will sell them.
Chief Financial Officer Frank N. Newman, who spoke to reporters at BankAmerica’s headquarters building in downtown San Francisco, said this subsdiary will hold $4.4 billion in branches, foreclosed properties, troubled loans and other miscellaneous items that the bank plans to sell.
Newman said the bank would begin closing an unspecified number of its 1,435 branches in late September or early October.
Once that consolidation begins, customers “will be seeing closures every weekend,” said Campbell K. Chaney, an analyst with Sutro & Co., an investment firm in San Francisco. Chaney added that the $4.4-billion figure of assets identified for sale is likely to go higher, but “how much we don’t know.”
BankAmerica reported that non-interest income in the second quarter totaled $1 billion and included a one-time gain of $157 million related to the sale of Bank of America’s payroll-processing business.
Total non-interest expense was nearly $2 billion, including a one-time charge of $395 million for costs to restructure the company in the wake of the merger. The bank also added $48 million to its operating loss reserves, covering legal matters that Newman said were not related to the merger.
