Security Pacific’s Profit a Record; Latin Debt Cut

Security Pacific reported strong second-quarter earnings Thursday and a reduction in its troubled Latin American debt.

The Los Angeles-based banking company said its net earnings were $154.3 million, the best in its history and a modest improvement over first quarter 1988.

The performance looks even stronger when contrasted with the loss of $190.2 million in the 1987 period. However, comparing earnings figures to last year’s second quarter is not really significant.

Security Pacific and the nation’s other major banks suffered big losses in the second quarter last year when they set aside billions of dollars as reserves for troubled Latin American loans. So a better comparison for earnings is the first quarter of this year.

On that basis, Security Pacific’s earnings for second quarter 1988 were up slightly from the $147.2 million in the year’s first quarter. Improvement was recorded in interest income, which rose 11%, and expense controls, which were better than they were in the first quarter of this year and the second quarter of last year.

Exposure Reduced

“We have made some real progress so far this year, as our expense-control programs are showing solid results, and we have reduced our non-trade related developing country debt by nearly 40%,” said Richard J. Flamson III, chairman and chief executive of the nation’s seventh-largest banking company.

By selling loans at below face value and exchanging debt for equity investments, Security Pacific reduced its exposure on Latin American debt by $600 million during the quarter. At the end of June, the bank had $1.1 billion in troubled loans concentrated in six Latin American nations. That represented less than 2% of total assets.

“The reduction in Third World debt is significant,” said Dan B. Williams, an analyst at the San Francisco brokerage Sutro & Co. “It confirms that banks like Security Pacific and Wells Fargo and First Interstate are going to be moving out of the Third World exposure pretty much as they can do it. That’s why they set aside the big reserves last year.”

John F. Kooken, Security’s chief financial officer, said losses on the $600-million reduction will be charged against the reserves taken last year and that the company does not anticipate requiring additional reserves this year.

The company reported mixed figures on the domestic loan front. Loan losses and the amount of non-performing loans increased in the quarter, but the overall level continued to be low.

The amount of domestic loans written off as losses in the quarter was $75.4 million, a decline of $17.3 million from second quarter 1987 but up $4 million from the first three months of this year. Non-performing domestic loans, those at least 90 days past due, rose $86 million from the end of March.

BofA Improvement Expected

Security Pacific is trying to keep the growth of its non-interest expenses within 5% this year. Its Security Pacific National Bank unit has closed 50 branches so far in 1988 and cutbacks are being examined in other units, too, officials have said.

Non-interest expenses, which essentially are staff and fixed overhead costs, rose 4% in the second quarter compared to the same period a year earlier. But the growth was below the 10% recorded in the first quarter of 1988. Total expense growth for the first six months of 1988 was 7%, according to Kooken.

Other big California banks are expected to report good earnings for the quarter in the next few days, with the biggest improvement expected at BankAmerica. Analysts have reported that earnings at the San Francisco bank significantly exceeded those of the first quarter of the year.

Elsewhere, Bank of New York, which has been engaged in a bitter struggle to take over Irving Bank, on Thursday reported modest earnings of $49.7 million for the second quarter. Its chairman, J. Carter Bacot, said the profit was helped by increased income from fees and a moderate rise in commercial lending.

First City Bancorp. of Houston reported earnings of $17.2 million in its initial operating period under new ownership. A. Robert Abboud, the former Occidental Petroleum president who heads the Texas banking company, called the performance “a good start.”