Chase Joins the Parade of Upbeat Bank Earnings - TheStreet

Chase Joins the Parade of Upbeat Bank Earnings

The second-largest U.S. banking company beat analyst consensus by a nickel.
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Chase Manhattan

(CMB)

released upbeat third-quarter numbers today, providing another in a string of solid results for U.S. banks.

Chase, the second-largest U.S. banking company after

Citigroup

(C) - Get Report

, reported that its earnings rose to $1.19 billion, or $1.37 a diluted share, from $738 million, or 82 cents a share, a year earlier. Chase beat the

First Call/Thomson Financial

analyst consensus by a nickel.

Net income in the 1998 third quarter included one-time gains that brought it to $837 million, or 94 cents a share.

Wall Street greeted the upside surprise with its usual enthusiasm, sending Chase's stock up 2 3/4 to 73 7/8 by midday.

The 61% rise in Chase's earnings reflects a solid recovery from last year's turbulent third quarter, marked by worldwide financial pressures including Russia's staggering default. The numbers tell the story. The pre-tax earnings of its global markets business, comprised of its currency and fixed-income operations, rose 64% over last year, while the operating revenue of its global investment banking business doubled.

The return on shareholder equity was 22%.

The only red flag in the numbers was the increase in non-performing loans for foreign commercial banks. That figure was $950 million, up 70% from a year ago and up 33% from the second quarter this year.

"It's been a very strong quarter and the non-performers are still at low levels," Tanya Azarchs, bank rating analyst at

Standard and Poor's

, said. "However, most other large banks had flat or improving non-performing loans."

There has been considerable speculation that Chase has actively sought to acquire a bulge-bracket investment banking operation, especially after rival Citibank merged with

Travelers Group

and its

Salomon Smith Barney

unit last year. That merger has apparently only served to help Citigroup, which reported a third-quarter 1999 profit leap of 236%. Another point of comparison between the two competitors: Chase's price/earnings ratio is currently 14.78 times, while Citigroup's is 18.60.

Last month, Chase announced its intention to purchase boutique investment bank

Hambrecht & Quist

.

Chase's overall prospects continue to look good, analysts say. "I expect Chase to continue performing strongly," Azarchs said. "The tone of their business is very strong."