Bank earnings hurt from afar

Published Dec. 17, 1998|Updated Sept. 14, 2005

Financial turmoil overseas has derailed a steady stream of record profits at the nation's commercial banks.

The country's 8,910 banks earned $15-billion in the July-September quarter, down 7 percent from a record $16.1-billion in the April-June period, the sixth consecutive quarter of record profits, the Federal Deposit Insurance Corp. said Wednesday.

The drop was more than accounted for by a $1.5-billion, or 73 percent, decline in net income from foreign operations. The drop was concentrated among the largest banks. The FDIC said "extreme volatility in overseas interest rates and foreign exchange rates" pushed down banks' trading revenue.

A basic yardstick of bank profitability _ return on assets _ fell from 1.25 percent to 1.15 percent.

However, FDIC chairwoman Donna Tanoue said the banking industry remains strong. It has the largest capital cushion, as a percentage of assets, since 1941 plus past-due loans remain at a 17-year low.

"Even with the earnings decline, the numbers show a strong and resilient commercial banking industry well positioned to deal with problems from an economic downturn," she said.

Meanwhile, the nation's 1,713 savings institutions reported record earnings of $3-billion in the third quarter, up from $2.8-billion in the second quarter. However, the FDIC said the income gain was largely the result of asset sales by a few large thrift institutions. Smaller S&Ls did not show the same income gains as larger thrifts.

Bank One expects

lower earnings

CHICAGO _ Costs associated with restructuring and acquisitions will lower Bank One Corp.'s earnings by $1.25-billion, starting in the fourth quarter and continuing next year, the bank holding company said Wednesday.

Bank One also said it plans to take an additional fourth-quarter charge of $150-million to $200-million, before taxes, or 8 cents to 11 cents a share, after taxes.

The charge reflects the revaluation of auto lease residuals; the write-down of automated teller machine assets; and contracts related to the Rapid Cash program and other asset revaluations.

The announcements come after the bank reported disappointing second-quarter earnings.

_ Information from Dow Jones News Service was used in this report.