Big Banks Post Sharp Profit Gains : Finance: But a sagging real estate market and more bad loans hurt results at Wells Fargo and the parent of Home Savings.

Citicorp and several other major banks posted sharply higher third-quarter earnings on Tuesday, but the profits of Wells Fargo & Co. and the parent of Home Savings of America sagged as California’s sour real estate market continued to take a toll.

San Francisco-based Wells Fargo’s net income plunged 72%, and that of Irwindale-based H.F. Ahmanson--owner of Home Savings of America, the nation’s largest thrift--dropped 22%. Both institutions increased reserves for bad real estate loans.

In contrast, Citicorp, the nation’s largest banking company, reported third-quarter net income of $116 million, contrasted with a year-earlier loss in the period of $885 million. Net income of New York-based Chemical Banking Corp. surged 34%.

Among regional banks, Pittsburgh’s Mellon Bank Corp. posted a gain in operating income of 40%, and Columbus, Ohio-based Banc One Corp. reported net income increased 33%.

Most banks benefited from widened “spreads” as they reduced the interest rates paid to depositors more rapidly than the rates they charge on loans. Many were also strengthened by cost-cutting efforts. New York-based Citicorp, the world’s largest foreign exchange trader, benefited from currency turmoil in Europe.

“Everything seems to be better than expected, even Citicorp,” said Paul Mackey, a banking analyst at Dean Witter Reynolds. Even Wells Fargo’s disappointing numbers “could have been worse,” added John Leonard, a banking analyst at Salomon Bros.

Here are the results of individual institutions:

* Wells Fargo: The sluggish California real estate market continued to depress the bank’s earnings. Wells Fargo’s net income tumbled to $24 million in the third quarter ended Sept. 30, compared to $86 million in the year-earlier period.

The chief hit came from a steep increase in the reserve to cover potentially bad loans, to $400 million from $200 million in the same quarter of 1991. As of the quarter’s close, the loan-loss provision equaled 5.06% of total loans, compared to 2.49% a year before.

“The California economy, particularly that of Southern California, continues to decline, and increased reserves appear prudent,” Chairman and Chief Executive Carl E. Reichardt said.

“Clearly, they’re continuing to fight an inflow of problem loans,” said Donald K. Crowley, an analyst with Keefe, Bruyette & Woods in San Francisco. “I don’t see a light at the end of the tunnel.”

Indeed, Wells Fargo warned that its own and federal regulators’ ongoing examinations could lead to further increases in the loan-loss provision.

* H.F. Ahmanson: Home Savings of America’s owner reported that third-quarter earnings fell to $50.7 million from $65.1 million in the same period the year before.

It suffered from an increase in its reserves to cover possibly bad loans. The reserve rose by $73.7 million to $408.7 million, compared to $262.2 million as of Sept. 30, 1991. Analysts had expected a much smaller increase.

Delinquent loans decreased in the quarter by nearly $75 million, but foreclosures rose by $163.6 million, resulting in a total rise of non-performing loans of $88.7 million. Most of that boost was from single-family residential loans, Chief Executive Richard H. Deihl said.

Given the troubles in California real estate, analyst Crowley said, “Ahmanson’s earnings will remain in the doldrums over the next year.”

* Union Bank: The bank, controlled by Bank of Tokyo, saw third-quarter net income rise dramatically to $29.6 million from $5 million in the comparable period of 1991. It was helped by the sale of $50 million in notes and $135 million in preferred stock.

Nonetheless, Union also continues to suffer from the stubborn Southern California recession. Non-performing loans rose to $514.9 million from $415.4 million in the 1991 period.

* Citicorp: The New York banking giant made “steady progress toward rebuilding its earnings capacity and strengthening its balance sheet, despite widespread economic sluggishness,” Chairman John S. Reed said.

The company’s $116-million profit exceeded its own estimate, issued earlier this month, of net income between $80 million and $100 million. The period was marked by improved foreign exchange revenue, a significant decline in commercial-credit losses, continued high consumer-credit losses and further building of loan-loss reserves, Citicorp said.

Non-performing loans on Sept. 30 fell to $4.5 billion from $6 billion a year earlier.

* Chemical: The nation’s third-largest banking concern posted “spectacular” results, analyst Mackey said. Net income in the period was $282 million, up from $209 million a year earlier.

Net income included a loan loss provision of $330 million, versus $313 million a year earlier, and foreign exchange trading profit of $176 million, versus $73 million a year earlier.

“The continued success of our merger (with Manufacturers Hanover Trust Corp.) was reflected across all of our businesses,” Chairman and Chief Executive John F. McGillicuddy said. Despite the economy, “the provision for losses decreased for the second consecutive quarter,” he added.

* Mellon: Third-quarter net more than doubled to $156 million from $70 million a year earlier, but this year’s results included $76 million in securities gains and an $18-million restructuring charge. Loan losses fell while the interest spread widened.

* Banc One: Third-quarter earnings climbed to $186.2 million, a record, compared to $140.4 million a year earlier. Year-ago results were restated for two acquisitions. “We continue to enjoy strong financial performance throughout the corporation,” Chairman John McCoy said.

Zonana reported from New York and Groves from San Francisco.