Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, March 21, 1991 TAG: 9103210038
SECTION: BUSINESS PAGE: B5 EDITION: METRO
SOURCE: From staff and wire reports
DATELINE: NEW YORK LENGTH: Medium
Signs of an improving economy and a less hostile reception from Wall Street are two reasons for hope in the first three months of 1991. Lower interest rates also have helped banks increase their profit ratios.
Most analysts aren't predicting a repeat of the third and fourth quarters of last year, which were marred by large losses, layoffs and restructurings among the major East Coast banks.
"As bad as the numbers may have been for the year end, the industry still showed a $16 billion profit, and that's in a bad year," said James Chessen, economist for the American Bankers Association in Washington.
Bank executives would be very pleased if this quarter's results matched those for the same period in 1990, when the industry earned $6.2 billion.
In Virginia, some banks could report losses and others may have lower earnings than the same period last year, said David Stumpf, who follows the banking industry for Wheat First Securities in Richmond.
He predicted a "difficult" first quarter for Roanoke-based Dominion Bankshares and three other statewide banking companies: Crestar, Signet and C&S/Sovran. He said quarterly results should be flat or slightly improved for Central Fidelity, First Virginia and Jefferson banks.
Lucy Zemp, industry analyst with J.C. Bradford & Co. in Nashville, expects weak first quarters for the three Virginia banks that her firm follows: Dominion, Crestar and Sovran. All of them have a strong presence in commercial real estate lending in Northern Virginia, she said, and that market shows no sign yet of recovery.
Zemp and Stumpf agreed, however, that no Virginia bank is in danger of failing.
Stumpf said Virginia banks are adequately capitalized and able to deal with their problem loans in commercial real estate. Zemp said the banks have high capital ratios, indicating financial strength.
So far, 25 banks have collapsed in 1991 and the FDIC expects 180 to fail this year, 11 more than last year.
Also depressing bank earnings are increased contributions to the federal bank insurance fund and new federal regulations that don't permit banks to use a large portion of capital to cover loan loss reserves.
"That will have a big effect on earnings," said Chessen. "Those are costs on the bottom line."
On Jan. 1, banks' contributions to the bank insurance fund increased to 19.5 cents per $100 on deposit, from 12 cents per $100. The increase is expected to raise $7 billion for the depleted insurance fund.
Bank lending continued to stagnate in the first quarter, a result of bankers' caution and weak loan demand from recession-shocked businesses and consumers, analysts said.
"I think we will see a banking industry as a whole continue to show profits and show improvements but there will still be areas of the country, particularly the Northeast, that will suffer problems," said Chessen.
Joan D. Schneider, economist for Continental Illinois Bank in Chicago, said bank difficulties in this quarter are "part of a longer adjustment going on in part of the industry. That is not going to be over in six months."
Business writer Mag Poff contributed to this story.
by CNB