BankAmerica and BankBoston Disclose Losses Tied to Russia
By RICK BROOKS Staff Reporter of THE WALL STREET JOURNAL - 08/30/98
BankAmerica Corp. and BankBoston Corp. announced that they have had trading losses related to the teetering Russian economy, and J.P. Morgan & Co. hinted that its trading revenue in the third quarter might fall far below year-ago results.
In Europe, meanwhile, Deutsche Bank AG acknowledged that it holds a large amount of Russian government securities and warned that it is bracing for higher loan losses linked to Russia.
"The moves [Friday] are likely a foreshadowing of similar announcements" from other banks, said Michael L. Mayo, a banking analyst at Credit Suisse First Boston Corp.
Still, Mr. Mayo and other analysts said the long-term impact is likely to be limited. "This isn't nice, but it certainly isn't an earth-shattering event," said Diane Glossman, a banking analyst at Lehman Brothers Inc. "It's not touching capital, it's not touching dividends, and it is by no means a safety and soundness issue."
Bank Stocks Get Hit
Shares of BankAmerica tumbled $4.1875, or 5.7%, Friday to close at $69.5625 in New York Stock Exchange composite trading, while BankBoston fell $3, or 7.7%, to $36. J.P. Morgan, which made
its announcement after the close of trading, plunged $7, or 6.7%, to $97.75 on the Big Board. Shares of other large U.S. banks with exposure to Russia also dropped. Citicorp fell $4.875, or 4%,
to $117.125; Chase Manhattan Corp. sank $1.625, or 2.8%, to $56.50; Bankers Trust Corp. slid $4.4375, or 5.3%, to $79.375; and Republic New York Corp. declined $2.875, or 6.3%, to $42.625, all on the Big Board.
BankAmerica said, so far in the third quarter, it had a pretax loss on trading operations of $220 million, almost entirely stemming from Russia. BankAmerica was particularly hurt by its holdings of
Russian government bonds, prices of which have dropped precipitously.
The hit was the largest disclosed so far by a U.S. bank. Last Thursday, Republic said its third-quarter profit would be essentially wiped out by $155 million in Russia-related charges. Credit
Suisse Group on Wednesday became the first European bank to show signs of damage, disclosing a loss of at least $250 million.
The extent of the trading loss at BankAmerica surprised some analysts, who described the impact as severe relative to the size of the San Francisco bank's emerging-markets trading operations.
"They had $400 million [in exposure to Russia], and they blew away more than half of it," said Lawrence Cohn of Ryan, Beck & Co.
Reducing Russian Exposure
BankAmerica, which is scheduled to merge with NationsBank Corp. by the end of next month, declined to estimate the impact of the damage on third-quarter earnings. Ronald Mandle, a banking analyst at Sanford C. Bernstein & Co., said the hit is equal to about one-fourth of BankAmerica's projected operating profit. Before the announcement, analysts had forecast third-quarter earnings of $1.25 a share, up from $1.11 a share a year earlier, according to First Call. The figures don't include NationsBank, of Charlotte, N.C., which has almost no presence in emerging markets.
BankAmerica said it has reduced its exposure in Russia to about $100 million as of Wednesday from $412 million at June 30. "We remain committed to global markets overall," a BankAmerica spokeswoman said. "While we take a big gulp in the short term, we have our eye on the longer term."
BankBoston disclosed a trading loss of $30 million during the current quarter, including losses of about $10 million related to Russia. The remaining losses stem from activity in other emerging markets, primarily in Latin America, a company spokesman said.
The bank said it now values its Russian trading position at $6 million, or just 10% of its face value. The bank said it disclosed the trading hit to squelch speculation that it had been dealt an even larger blow.
Some of the damage, amounting to six cents a share on an after-tax basis, might still be covered by hedge positions held by BankBoston in other countries, the spokesman said.
Unspecified Losses
The fallout also reached J.P. Morgan, a leading trader of emerging-market debt. The company said "unsettled financial markets globally and notably events in Russia" had limited trading income to
$300 million so far in the quarter. That figure includes unspecified losses from writedowns of Russian assets, partially offset by gains in other emerging markets, and lower revenue from trading activities in developed markets, J.P. Morgan said in a statement.
J.P. Morgan didn't describe the damage in greater detail. But shaky economic conditions around the globe are almost certain to hurt its third-quarter results. With barely four weeks left in the quarter,
J.P. Morgan's trading revenue and trading-related net interest income will likely be far below both the $951 million reported for the second quarter and the $775 million in last year's third quarter. J.P.
Morgan also said its total exposure to Russia as of Thursday was $160 million. People close to the bank say the figure stood at about $400 million earlier this year.
Chase Manhattan and Bankers Trust are the only big U.S. money-center banks that haven't yet disclosed their current Russian exposure. Last week, Citicorp said its exposure stood at $420 million.
Deutsche Bank said Friday that it was "on the verge of raising loan-loss provisions" for its 1.35 billion marks ($767.7 million) of Russian loans. Analysts estimated the extra cushion against
potential losses would amount to at least 350 million marks. Bank Austria, in a bid to quell rumors that it faces massive losses on Russian loans, also said it would significantly bolster its loss
reserves.
--Ross Kerber, Matt Murray and Christopher Rhoads contributed to this article. |
