NEW YORK — Chemical New York Corp. announced plans Monday to cut its work force by about 10% and sell non-strategic businesses in sweeping moves that reflect the retrenchment by the nation's major banks.
Faced with earnings pressures from losses on loans to developing nations and heightened competition for their traditional lending services, banks are cutting overhead built up during years of expansion.
"I think all of them are bloated to some extent and need to trim to become efficient," said Stephen Berman, who follows the banking industry for the investment firm County Securities USA.
Chemical, the nation's fourth-largest bank holding company, employs about 21,000 people and said it would make the cutbacks through layoffs, attrition and voluntary retirement.
The company in the past year already had eliminated through attrition about 500 jobs not included in the cuts announced Monday, spokesman Ken Herz said.
Chemical also plans to sell its Cleveland-based consumer finance subsidiary, Chemical Financial Services Corp., and other unspecified non-core businesses in the coming year.
Those sales are expected to raise about $300 million before taxes, which would be used to bolster equity as well as operations that support the company's long-term plans.
Chemical said it would take a one-time charge of about $135 million for costs stemming from the restructuring, resulting in a $65-million net loss for the third quarter.
The company's stock rose $1.375 a share to $39.75 in New York Stock Exchange trading.
"The actions we are announcing today, coupled with other initiatives, will enable Chemical to achieve significantly improved earnings performance in the years ahead," Walter V. Shipley, chairman and chief executive of Chemical Bank, said in a news release.
Analysts have said many major banks will have to take similar steps to offset the impact of competition, loan losses and a sluggish economy on their earnings.
Chemical had a $1.1-billion loss in the second quarter because, like other big banks, it made a major increase in its reserves for covering potential bad loans to Third World debtors.
The banking industry as a whole was expected to earn about $5 billion to $6 billion in 1987, down sharply from the $17.9 billion earned last year, largely because of the loan-loss reserves.
Earnings also have suffered as traditional businesses such as corporate lending were invaded in force by foreign and domestic competitors and as the capital markets became more accessible for traditional customers with financing needs.
"There's just less need to borrow from the commercial banks," said Charles Orabutt Jr., an analyst at the investment firm Duff & Phelps Inc. in Chicago.
A number of analysts have pointed out that although bank earnings have grown in recent years, part of those gains stemmed from non-recurring factors such as trading profits from the bull market in bonds and on volatile foreign exchange markets of the mid-1980s.
"If you want to be a major player in the 1990s, you're going to have to strengthen your financial performance," said Chemical's Herz. "We think in the year 1992 we're going to be awfully happy we undertook this thing."
Selling Non-Strategic Assets
Some of the major banks have been adjusting in recent years by attempting to increase their presence in the capital markets and other non-traditional areas. Others already have felt the sting of major restructuring programs aimed at dealing with the industry consolidation.
Chemical said its cutbacks will not apply to Texas Commerce Bancshares, the Houston-based bank holding company that merged with Chemical on May 1. Texas Commerce, suffering the effects of the economic slump in the Southwest, has been on an austerity program for the past three years.