EARNINGS : 2 More New York Banks Boost Loan-Loss Reserves

NEW YORK —  Chemical Banking Corp. said Thursday that it added $900 million to its cushion against possible loan losses, resulting in a third-quarter loss of $824.6 million for the nation’s fifth-largest bank holding company.

Also Thursday, Bank of New York Co. announced a $600-million increase in its allowance to cover potentially bad loans. The provision caused Bank of New York to post a loss of $271.3 million in the third quarter.

Chemical and Bank of New York joined a lengthening list of big U.S. banks that recently have bolstered their protection against losses amid a widespread perception that economic and political difficulties in the Third World might make it impossible for countries to repay their debts.

Chase Manhattan Corp., J. P. Morgan & Co. and Manufacturers Hanover Corp. previously announced that they were substantially boosting their loan-loss reserves.

Chemical said in a news release that it has made a special $600-million provision to its reserve for losses on loans to countries engaged in debt rescheduling negotiations. Chemical’s allowance for losses on loans to troubled Third World debtors has grown to $1.84 billion on account of the addition.

Another $300 million was set aside to cover possible losses on nonperforming loans at Texas Commerce Bancshares Inc., a Chemical subsidiary. Chemical has been trying to weed out shaky loans at Texas Commerce Bancshares since acquiring it in 1987.

The federally assisted bailout and recapitalization of numerous Texas banks has weighed down the state’s real estate market. By making the $300-million provision, Chemical was attempting to insulate future earnings from expected losses on the disposal of nonperforming Texas Commerce Bancshares’ loans.

In a move aimed at enhancing its equity-capital position, Chemical also announced plans to issue $500 million in common stock. Chemical said it soon would file a registration statement with the Securities and Exchange Commission.

In 1988’s third quarter, Chemical earned $211.9 million, a period in which results benefited from several nonrecurring gains.

Chemical lost $578.1 million in the first nine months ended Sept. 30, contrasted with a profit of $465.1 million in the corresponding 1988 period.

Bank of New York said its loss for the quarter ended Sept. 30 contrasted with income of $54.2 million a year earlier.

But without the special addition to its loan loss allowance, Bank of New York would have earned $118.7 million, or $1.60 a share on a fully diluted basis, in the quarter.

J. Carter Bacot, Bank of New York’s chairman and chief executive said $400 million of the special addition was designated to cover loans to Third World countries, and the remainder was set aside for other unspecified loans.

“Our decision was prompted by recent developments regarding Lesser Developed Country debt negotiations, and is consistent with our policy of maintaining appropriate reserves for the entire loan portfolio,” Bacot said in a news release.

Bank of New York said its provision for LDC loans now stands at $938.6 million out of a total loan-loss allowance of $1.52 billion.

The bank’s earnings, meanwhile, were said to be strong. The bank benefited from cost savings related to its $1.4-billion acquisition of Irving Trust Co., completed in December of last year. Revenue growth from securities processing operations also contributed to third quarter results.

For the nine months ended Sept. 30, Bank of New York reported a loss of $55.9 million contrasted with the prior year’s income of $158.3 million.

Excluding the special addition, nine-month earnings would have been $334.1 million.

Bank of New York said it expects to post a profit for all of this year.