Declines in 3rd-Period Trading Income Spark Wave of Restructurings at Banks
Many of the country's top banks took a beating on market-sensitive sources of income in the third quarter while their basic lending business remained sluggish. The results are encouraging a wave of restructurings similar to those undertaken by industrial corporations in the past five years.</br></br>Some major banks acknowledge that the stock market crash will cause them even more problems in the fourth quarter by limiting the special gains that they will be able to take from equity-investment and other asset-sales and from pension-fund reductions. They also expect to be hurt by losses in options and equity-securities trading, once highly profitable businesses.</br></br>Continental Illinois Corp., for example, said its options-trading unit will realize losses for the fourth-quarter on last week's trading although the results aren't expected to cut sharply into the parent company's earnings.</br></br>But these problems aren't nearly as serious as the difficulties banks experienced in the crash of 1929, which led to crippling loan losses as the economy collapsed. Moreover, losses related to the 1987 crash will be partly offset by expected gains from the explosive bond rally ignited by the stock market's fall. In 1988, bank analysts expect the top banks' basic operations to produce flat or slightly higher "core" earnings, compared with 1987.</br></br>Bankers also expect the widespread restructuring of the industry-ranging from reducing staff to slashing lending to exiting from unprofitable businesses -- to aid next year's earnings outlook.