Updated from 11:22 a.m. EDT
As hard as it is trying,
can't eliminate risk from its earnings equation.
In the third quarter, the Boston-based bank earned $579 million, or 55 cents a share, including losses from discontinued operations, compared to $766 million, or 70 cents a share, a year earlier.
"We continue to actively lower our risk profile by steadily reducing exposures to large corporations both domestically and in Latin America," said president Eugene McQuade in a written statement.
Last quarter, Fleet had a loss of $386 million, largely due to bad loans in Argentina. In the third quarter, the bank trimmed its loan portfolio in Argentina and Brazil, where the local currency is plunging.
Still, Fleet took a hit of $42 million, or 4 cents a share, for weakness in Argentina, during the third quarter. And the bank remains a lot more exposed to Latin American weakness than its competitors.
The bank also reported an $18 million loss from discontinued operations in the third quarter, primarily related to the cost of shutting its unprofitable Robertson Stephens investment banking business. Excluding those losses, the bank earned $597 million, or 57 cents a share, in line with analyst estimates.
Fleet's decision to exit the investment banking business, another attempt to minimize its exposure to risk, come as the industry is in the midst of a major downturn. But the move could backfire on them.
"They did not get out early enough. So, they have taken their lumps," said Claire Percarpio, an analyst at Janney Montgomery Scott. "And when banking rebounds, they are not in it."
In the third quarter, Fleet wrote down $68 million, or 6 cents a share, for its principal investing business, as the value of its technology and telecommunications holdings fell.
Looking ahead, FleetBoston anticipates another quarter very much like the one that just ended.
"I expect the fourth quarter to be similar to the third quarter, with decent growth in our customer businesses, stable credit quality, weakness in Latin America and weakness, but perhaps a rebound, in market-driven businesses," McQuade told a conference call with analysts.
On the plus side, FleetBoston had $34 million, or 3 cents a share, in securities gains in third quarter. And core U.S. deposits were up 13% to $92 billion, from $81.6 billion a year ago.
Nonperforming assets, or loans with payment problems, were $3.8 billion, down $130 million sequentially. The company said it expects nonperformers to be flat to down in the fourth quarter on its conference call, adding that it is moving aggressively to get problem loans out of the way.
Still, with a slowdown in the economy, Fleet's core customer businesses will be challenged to grow. "They didn't indicate much strength in their franchise," said Richard Bove, an analyst at Hoefer & Arnett.
In the third quarter, net income from retail banking fell to $135 million from $140 million in the previous quarter. Meanwhile, commercial loan growth was down sequentially. Given the cyclical nature of Fleet's business, weakness in domestic and global economies will continue to be major risks.
"The most encouraging thing about this quarter is that nobody was hitting them on the head with a hammer," said Bove. "But they are not showing forward momentum in their business."
Shares of FleetBoston Financial ended the session down 45 cents, or 2.1%, at $21.09.