Chase Manhattan Corp., which was involved in the costly failures of both Drysdale Government Securities Inc. and Penn Square National Bank, reported yesterday that it lost $16.1 million in the second quarter of 1982.
Chase officials also confirmed that nine Chase employes, including two high-ranking officials, have been fired because of mistakes they made that resulted in an after-tax loss of $117 million in the Drsydale affair and a write-off of $45 million in bad energy loans it bought from Penn Square. Another top official was demoted.
Meanwhile, Comptroller of the Currency C.T. Conover, who has come under congressional criticism for permitting Penn Square to continue on a lending spree that led to its demise two weeks ago, said that the procedures his office followed in trying to bring Penn Square back in line were the same followed with other banks put under special supervisory attention.
In his first interview since he closed the Oklahoma City institution July 5, Conover said 215 banks were listed as needing special supervisory attention in mid-1980, when Penn Square was put on the list. By July 1, more than two-thirds of them had returned to health and only 14 had become problem banks or failed, he said.
"From what we knew at the time, we took the appropriate action," Conover said. Penn Square managers and directors apparently ignored first criticism, then pressure and eventually a formal cease-and-desist agreement from the comptroller's office, which regulates the 4,400 nationally chartered banks.
Conover said he is reviewing the procedures followed with Penn Square--and other banks--to see if they should be revised.
Penn Square, with about $465 million in assets, failed because about $50 million in loans it made to oil drillers went sour. But Conover and his deputy, Paul Homan, said there is much evidence of fraud and insider trading at the failed bank, too.
The Oklahoma City institution also sold about $2 billion of loans it made to other major banks. Chase, the nation's third-biggest bank, said yesterday that it bought about $212 million of them. At least $45 million of those loans were bad, and it wrote them off against its reserve for loan losses. The loans had no impact on Chase's second-quarter earnings.
But because it assumed the debts of its failed customer Drysdale Government Securities Inc., Chase turned what would have been $100 million in profits for the quarter into a $16.1 million loss. A year ago, Chase earned $100.6 million ($2.83 a share) in the second quarter. After losses on securities sales, Chase had a total net loss of $30 million in the second quarter compared with net income of $97.2 million in the second three months of 1981.
Meanwhile Citicorp, whose assets make it the biggest bank company in the country, posted second-quarter income of $148 million ($1.15 a share) before securities transactions, 40 percent more than the $106 million (84 cents) it earned in the second three months of 1981. After losses on securities sales--mainly low-yielding bonds--Citicorp had net income of $137 million ($1.06) compared with $103 million (81 cents) in the second quarter of 1981.
Citicorp, parent company of Citibank, said a big increase in net interest income (the difference between what a bank pays for its money and what it lends it for) was a major factor behind the profit climb.
Lawrence Fuller, who specializes in banking for the brokerage firm Drexel Burnham Lambert Inc., said that, despite the mistakes that led to Chase's second-quarter loss, the bank appears to be in solid shape. He said the bank's net interest income was up 14 percent, not as spectacular as Citibank's, but a solid performance.
And despite the Drysdale loss--which occurred after the tiny, four-month-old securities firm speculated its way to a $6 billion portfolio of government securities with the aid of Chase as its broker--Chase Manhattan reported earnings of $100.2 million for the first half of 1982 compared with $174.1 million during the first six months of 1981.
After the Drysdale fiasco, and again after Penn Square, Chase launched an investigation and, as a result of that investigation, Executive Vice President Will R. Hinchman Jr. and Senior Vice President Wayne Hansen were told to resign. Richard J. Higgerson, who was in charge of the overall sector of the bank that handled both Drysdale and the Penn Square loans, was demoted. Seven other lower officials also resigned.
Chase and other banks that bought loans from Penn Square--the biggest loser is likely to be Chicago's Continental Illinois, which bought $1 billion in loans--likely will sue Penn Square for fraud. But the bank has about $450 million in assets--many of which are worth much less than face value--and could face total claims of nearly $3 billion.