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Chase, First Chicago Post Big Losses for Quarter

July 14, 1987|From Associated Press

Chase Manhattan Corp. and First Chicago Corp., two of the nation's largest bank holding companies, on Monday reported large second-quarter losses as a result of their decisions to increase loan-loss reserves against shaky Third World loans.

Both companies were among a number of major U.S. banks to recognize the vulnerability of credits to less-developed countries, or LDCs, and each had projected huge quarterly shortfalls.

Banking analysts said the losses were generally in line with their predictions.

Chase Manhattan, which added $1.6 billion to its loan-loss reserve, said it lost $1.37 billion in the three months ended June 30--the fifth-largest quarterly loss for an American company. During the same period a year ago, the nation's third-largest bank holding company earned $145.76 million.

For the first six months of 1987, Chase said it had a consolidated net loss of $1.27 billion, compared to net income of $289.45 million in 1986.

First Chicago, the 11th-largest bank holding company, reported a net loss of $698.28 million, compared to net income of $63.61 million in the 1986 quarter. For the first half of this year, First Chicago lost $633.32 million, compared to net income of $126.65 million in 1986.

The company added about $800 million to its reserve for foreign debt exposure.

Citicorp, the nation's biggest bank holding company and the first to increase its loan-loss reserve by $3 billion in May, said it expected a $2.5-billion second-quarter loss due to the accounting move.

By sharply boosting reserves, banks reduce their current earnings but establish a cushion to protect future earnings from loans that must be written off or disposed of at a loss.

The banks have cited the decision by Brazil, the developing world's biggest debtor, to halt interest payments on its international bank debt in February, troubled Third World economies and a series of debt restructurings as reasons for the reserves.

Chase Manhattan said it would have earned $122 million in the second quarter had it not been for the increased reserves.

Stephen Berman, a banking analyst with County Securities, called Chase's quarterly results "quite good," fundamentally.

"Actual fees were quite healthy and . . . expense control was in line to slightly better than expected," he said.

Chase said its net interest income, excluding the loan provision, rose to $750.88 million from $739.88 million a year earlier, while non-interest income dipped to $417 million from $449 million.

Non-interest operating expenses rose about 2% to $847.99 million from $834.41 million.

The company said its provision for possible credit losses was $1.73 billion for the second quarter, including the $1.6-billion special addition for the Third World loans.

Chase said the continuing non-accrual status of loans to borrowers in Brazil and Ecuador reduced second-quarter 1987 income by about $30 million.

"The results for the quarter were dominated by the special provision for troubled country exposure," said First Chicago's Chairman Barry F. Sullivan. "Nevertheless, net interest income and foreign exchange trading profits achieved record levels of our principal business units."

Second-quarter net interest income, excluding the provision, was a record $309.6 million, compared to $283.5 million a year ago, the company said.

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