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Losses for Wells, Citibank, SecPac : Earnings: The three industry leaders blame the fourth quarter's red ink on the recession and bad real estate loans.

January 22, 1992|JAMES BATES | TIMES STAFF WRITER

Three major banks--Wells Fargo & Co., Security Pacific Corp. and Citicorp--posted steep fourth-quarter losses Tuesday, caused by the continued slow economy and problems in the nation's overbuilt commercial real estate market.

Security Pacific's three-month loss was the largest, at $409.2 million, or $3.28 a share. It partly reflects a widespread cleanup of its finances being taken in anticipation of its acquisition this spring by BankAmerica Corp.

Wells Fargo's quarterly deficit was $231 million, or $4.59 a share, stemming in part from the results of a recent regulatory exam of the San Francisco bank's portfolio of commercial real estate loans.

Citicorp, the nation's biggest bank, lost $133 million, or 53 cents a share, in the October-to-December period.

None of the losses posted was a surprise, since all three banks had cushioned the shock by publicly disclosing fourth-quarter projections over the past few weeks.

Separately, one bit of good news for major banks came Tuesday as regulators said they will phase out a requirement for banks to list separately "highly leveraged transactions," a category of loan that typically includes financings of corporate buyouts and loans to companies with big debts.

Although the move is not expected to trigger new buyout lending, it is a signal that regulators no longer consider buyout loans to be the major problem for banks that they once feared. Bankers and analysts said the action also removes a stigma attached to the loans that caused many banks to quit making them.

In San Francisco, Wells Fargo's loss was in line with an estimate made in December, reflecting the setting aside of $700 million for possible loan losses. Despite the big fourth-quarter loss, a number of analysts have expressed relief that the loss wasn't bigger given Wells Fargo's huge exposure to commercial real estate lending.

The loss comes in the wake of a special regulatory examination of Wells Fargo's real estate loans. In a statement, Chairman Carl E. Reichardt said the boost in loan-loss reserves is appropriate because the "economic environment continues to be difficult for banks."

Despite the big fourth-quarter loss, Wells Fargo managed to squeeze out a small profit for all of 1991. The bank earned $21 million, or 4 cents a share, compared to a profit of $712 million, or $13.39 a share, in 1990.

Security Pacific's higher-than-expected loss, projected last week by the Los Angeles-based bank, reflects in part the slow California economy and its efforts to set aside sufficient money to cover problem loans before its pending merger with BankAmerica Corp. in San Francisco.

In a statement, Chief Executive Robert H. Smith said the state economy "continues to lag a very slow national economic recovery," adding that the timing and the strength of California's recovery remains uncertain.

For all of 1991, Security Pacific lost $774.5 million, or $6.37 a share, contrasted with a profit of $161.3 million, or $1.03 a share, a year earlier.

Citicorp's loss, also projected last week, brought its loss for the year to $457 million, or $1.89 a share. That contrasts with a profit of $458 million, or 99 cents a share, in 1990.

Despite the loss, Citicorp Chief Financial Officer Thomas Jones in a conference call with securities analysts said the bank has made progress in cutting expenses and that consumer-related loan problems on such things as credit cards appear to be easing. He added that Citicorp is halfway through a two-year revamping and is optimistic of a recovery happening soon.

"Whatever your view of this recession, they all do end sooner or later," Jones said.

The stock market took a dim view of the bank financial reports: Wells Fargo's stock slid $2.375 to $64.75; Security lost 87.5 cents to $32.625, and Citicorp dropped 62.5 cents to $13.875.

Tuesday's development on corporate buyout loans came via a joint statement by major bank regulators, who noted that fewer buyout loans are being made these days because so much corporate takeover business has dried up. Regulators emphasized that the action Tuesday won't change the scrutiny their examiners are giving the loans now.

But bankers and analysts said the change can be viewed as something of a vote of confidence that the industry has successfully dealt with an issue once perceived to be a major problem for banks.

Regulators began giving corporate buyout loans special attention in 1989 by formulating a special definition for them, a move seen as a way to put a spotlight on that type of lending to pressure banks into being more careful when making the loans. That concern was heightened by bankruptcy filings of such highly leveraged firms as the Revco drugstore chain and the unraveling of a planned buyout of United Airlines.

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