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B of A Back in Black With Net of $54 Million : Analysts Credit Firm's Restructuring Efforts

October 23, 1987|DOUGLAS FRANTZ | Times Staff Writer

BankAmerica, California's largest bank company, Thursday posted a small profit of $54 million for its third quarter, ending an 18-month hemorrhage of red ink and evoking a positive response from securities analysts.

The third-quarter earnings reflected the fruits of the company's efforts to pare operating costs, accomplished over the three-month period largely by cutting 1,400 jobs, and to reduce the volume of bad loans.

The net earnings contrasted with a loss of $23 million in the same quarter of 1986. It marked only the third quarter since early 1986 that the company has posted a net gain and the first quarter in which it recorded an operating profit. The net gains in the two previous quarters were the result of the sale of major assets, rather than operating profit.

Executives Quit

While reporting the improved earnings, a bank official also confirmed that two high-ranking executives quit this week after reportedly being asked to resign as a result of data processing problems in the trust department.

Plagued chiefly by bad loans, BankAmerica lost $518 million in 1986 and $337 million the year before. Earlier this year, the San Francisco-based company fell to No. 3 among U.S. banking companies in size, behind Citicorp and Chase Manhattan.

The loan-loss situation worsened in the second quarter of 1987, when the company was forced to add $1.1 billion to its loan-loss reserve to cover bad loans to developing nations. The addition resulted in a record $1.136-billion loss for the second quarter.

While the third-quarter gain still left the company $1.015 billion in the red for the first nine months of 1987, BankAmerica officials and analysts sounded an encouraging note.

"The quarter's results continue to show steady progress in our recovery," A. W. Clausen, the company chairman, said in a prepared statement. "We are encouraged that the fundamental improvements in our earnings reflect the results of restructuring steps we announced last year."

Charge Offsets Gain

The restructuring has centered on selling some profitable assets, including the Charles Schwab brokerage unit, its Italian bank and its headquarters building, and on attempting to reduce the enormous burden of problem loans.

BankAmerica reported a gain of $29 million from the sale of small assets in the third quarter, primarily its interest in a Spanish bank and its East Asian credit card operation. Analysts believe that BankAmerica has sold all of the major assets it intends to shed.

The gain was offset by a $22- million charge against earnings related to reducing the value for accounting purposes of BankAmerica's interest in an affiliated foreign bank.

The third-quarter figures show continued improvement in the company's effort to reduce its bad loans. BankAmerica declared $163 million of loans lost in the quarter, compared to $237 million in the second quarter and $403 million in the third quarter of 1986.

In addition, the list of loans that are not paying interest was reduced by $400 million, to $4.6 billion from $5 billion. It was the second consecutive quarterly reduction.

Donald Crowley, an analyst in San Francisco with Keefe, Bruyette & Woods, said the company's fundamental earnings showed improvement, particularly as a result of the continued reduction of troubled loans.

Trust Customers Lost

"The key to going forward lies in improvement in the credit quality level," said Crowley. "They are working hard to clean up the loan portfolio, but they've got a long way to go."

His assessment was echoed by Dan B. Williams, a Sutro & Co. analyst, who said the reduction in loan losses was a little better than had been anticipated.

BankAmerica's stock was off 75 cents to $9.375 Thursday, a day that saw the Dow Jones industrial average fall 77.42.

The report showed total assets at $99 billion, $2 billion higher than three months earlier. But the company's chief financial officer, Frank N. Newman, said the figure was an anomaly and the average assets for the period remained at $97 billion.

Newman also said some trust customers have left the bank as a result of problems in converting to a new computerized accounting system for its trust department. He declined to comment on the resignations this week by two officials with responsibility for the department, Louis Mertes, an executive vice president and member of the company's managing committee, and Clyde R. Claus, executive vice president in charge of the trust department.

BankAmerica set aside $23 million in the second quarter to cover anticipated costs arising from the computer problems, and Newman said the company believes that amount remains sufficient.

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