Chase to cut 5,000 jobs, slash dividend

September 22, 1990|By Thomas Easton | Thomas Easton,New York Bureau of The Sun

NEW YORK — An article in Saturday's Sun about New York's Chase Manhattan Corp. said that branch operations at its Maryland affiliate, Chase Bank of Maryland, may not be profitable and that it was uncertain how the Maryland bank might fit into Chase Manhattan's long-term plans.

That information, obtained from Chase in New York, is incorrect, according to Chase Bank of Maryland officials, who say the affiliate is a profitable segment of Chase's domestic individual business. Chase Manhattan's senior management has identified this type of business as a core area of growth.

The Sun regrets the error.

NEW YORK -- Stung by huge losses in commercial real estate and declining confidence in the market place, Chase Manhattan Corp. announced yesterday that it will take a $1 billion charge against third-quarter earnings and cut 5,000 jobs.


Chase, the nation's second-largest bank, said it expects to lose $625 million for the quarter, despite a $117 million extraordinary gain from the sale of an office building in Frankfurt, West Germany.

About $650 million will be set aside for bad loans, and $350 million to pay for restructuring.

To conserve needed capital, Chase will slash its dividend to 30 cents a share from 62 cents. Based on the number of outstanding shares at the end of the second quarter, the move would save $161 million annually.

The restructuring and the laying off of 12 percent of the work force is expected to reduce operating expense by an additional $300 million. The company said it expects to earn $140 million in operating profits in the fourth quarter.

The company's stock dropped on the announcement, closing at $12.75, down $1 for the day and $32 from its $44.875 peak late last year.

"I think they went as far as they could, but not far enough," said J. Frederick Meinke, an analyst with Raymond James & Associates.

Another investment analyst, Richard Bove of Dean Witter Reynolds, said that "assuming the recession is moderate and the earnings projections correct, its actions are more than enough." But he cautioned that the environment has become increasingly difficult for banks and could prompt Chase to take more drastic action.

Rumors of worsening problems have dogged Chase since last fall, pushing its share price down to levels last seen during the recession of the mid-1970s.

During the last two weeks, the negative sentiment has become increasingly intense, prompting concern over whether the bank can maintain critical external funding. The bank has denied that such problems exist, noting it has not been forced to borrow from the Federal Reserve Bank's discount window.

But yesterday's move clearly came in response to the growing clamor. Chase attributed its current problems to the "accelerated deterioration of the domestic commercial real estate markets" and said it would concentrate on the "most profitable businesses, including all segments of our domestic individual business."

Regional banking activity, which includes the Maryland operations, were not cited. Chase Maryland does fall into the "domestic individual" category. But aside from its lucrative credit card business, the Maryland branches may not be profitable and therefore may not be part of the company's new strategic plan.

Yesterday's announcement was the second in a year involving problem loans. Last fall, Chase set aside $1.3 billion for debt extended to Third World countries. Even with the vast amount appropriated during this year and last, Chase has not fully covered their exposure to troubled loans, said Anthony Polini, an analyst at A. G. Edwards. Moreover, its also faces potential problems from other loans to highly leveraged companies.

"If the economy continues to decline and interest rates move the wrong way [up], another hit may be required to put Chase on the road to recovery," Mr. Polini said. "I don't think these actions will remove any uncertainty of its ability to continue to pay their dividend in the long term."

Chase said that despite the stiff charge-offs, it will continue to have enough capital to satisfy stiffer requirements due to be instituted in 1992.

Thomas Labrecque, who will become Chase's chief executive next month, told Reuters that the banking industry is much stronger than the recent gloomy forecasts would indicate. "The important thing is the earnings power of the banking industry and its ability to generate capital, which I think it can," he said.

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