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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,D.C. 29549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): March 18, 1997
THE CHASE MANHATTAN CORPORATION
(Exact name of Registrant as specified in its Charter)
DELAWARE 1-5805 13-2624428
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(State or other Commission (IRS Employer
Jurisdiction of File Number ID Number)
Incorporation)
270 Park Avenue
New York, New York 10017
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 212-270-6000
N/A
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(Former name or former address, if changed since last report.)
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ITEM 5. OTHER EVENTS
On March 18, 1997, The Chase Manhattan Corporation (the
"Corporation"), at a meeting with analysts, reviewed several business items.
Information presented at the meeting included the following:
A. LINES OF BUSINESS RESULTS FOR GLOBAL WHOLESALE BANKING AND REGIONAL AND
NATIONWIDE CONSUMER BANKING:
THE Corporation manages itself using an economic-based risk-adjusted management
information system ("MIS"). This system includes many key lines of business
which are organized into two major business franchises, Global Wholesale Banking
and Regional and Nationwide Consumer Banking ("RNCB"). Within each of these
franchises, key businesses are measured independently on a profit and loss and
rate of return basis, as well as by other key performance measures. Highlights
of key business performance measures follow, reflecting risk-adjusted MIS
line-of-business results.
Lines-of-business results are subject to restatement as appropriate whenever
there are refinements in management reporting policies or changes to the
management organization. The current presentation of the lines-of-business
results have been restated to reflect a single, uniform post-merger set of
management accounting policies.
Guidelines exist for assigning expenses that are not directly incurred by the
businesses, such as overhead and taxes, as well as for allocating stockholders'
equity and the provision for credit losses, utilizing a risk-based methodology.
Also incorporated in the guidelines is a process for matching assets and
liabilities with similar maturity, liquidity and interest characteristics within
each business. Noninterest expenses of the Corporation are fully allocated to
the business units, except for special corporate one-time charges. Management
has developed a risk-adjusted capital methodology that quantifies different
types of risk -- credit, market, and operating -- within various businesses and
assigns capital accordingly. The provision for credit losses is allocated to
business units utilizing a credit risk methodology applied consistently across
the Corporation and a risk grading system appropriate for a business unit's
portfolio. The difference between the risk-based provision for credit losses and
the Corporation's provision for credit losses is included in the Corporate
results. Long-term expected tax rates are assigned in evaluating the
Corporation's businesses and the difference between the risk-based tax rate and
the Corporation's tax rate is included in the Corporate results.
Lines of Business Results
<TABLE>
<CAPTION>
Global Wholesale Regional and Nationwide
Banking Consumer Banking Total(a)
Year Ended December 31, (in millions, except ratios) 1996 1995 1996 1995 1996 1995
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<S> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 3,487 $ 3,141 $ 5,877 $ 5,560 $ 8,286 $ 8,202
Noninterest Revenue 4,999 4,274 2,222 2,166 7,572 6,676
Noninterest Expense 4,741 4,565 4,461 4,748 9,306 9,450
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Operating Margin 3,745 2,850 3,638 2,978 6,552 5,428
Credit Costs 307 221 1,434 1,048 881 683
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Income Before Taxes 3,438 2,629 2,204 1,930 5,671 4,745
Income Taxes 1,289 986 861 766 2,155 1,842
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Operating Net Income 2,149 1,643 1,343 1,164 3,516 2,903
Restructuring Costs (49) (9) (42) -- (1,125) (9)
Nonrecurring Items(b) -- 51 -- 45 70 65
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Net Income $ 2,100 $ 1,685 $ 1,301 $ 1,209 $ 2,461 $ 2,959
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Average Common Equity $ 9,663 $ 9,265 $ 6,415 $ 6,698 $ 17,965 $ 16,913
Average Assets $221,680 $203,696 $111,914 $106,906 $321,240 $307,385
Return on Common Equity 21.0% 16.1% 19.7% 16.1% 18.4% 15.8%
Operating Efficiency Ratio 56% 62% 55% 61% 59% 64%
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</TABLE>
(a) Total column includes Corporate results. See description of Corporate
results herein.
(b) Nonrecurring items for 1996 include the loss on the sale of a building in
Japan, costs incurred in combining the Corporation's foreign retirement plans,
and aggregate tax benefits and refunds. The 1995 results include the gains on
the sales of the Corporation's investment in Far East Bank and Trust Company and
Chemical New Jersey Holdings, Inc. and the loss on the sale of half of the
Corporation's 40% interest in CIT.
Global Wholesale Banking
Global Wholesale Banking provides financing, advisory, sales and trading, trade
finance, asset management, private banking and operating services to clients
worldwide, including corporations, institutions, governments and wealthy
individuals. Through these businesses, the Corporation is driving towards a new
model for the delivery of global financial services, integrating product
expertise, industry knowledge and geographic reach to effect superior customer
solutions. Global Wholesale Banking operates in more than 50 countries,
including major operations in all key international financial centers.
Global Wholesale Banking encompasses investment banking and corporate lending,
global markets activities, equity investing, private banking, asset management
and information and transaction services. Terminal Businesses, representing
discontinued portfolios (primarily the remaining refinancing country debt and
commercial real estate problem asset and nonperforming portfolio), are also
included in Global Wholesale Banking.
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Global Wholesale Banking's operating net income for 1996 was $2,149 million
and operating return on common equity was 21%. These favorable results were
driven by higher trading-related revenue, reflecting strong performance in the
emerging markets, combined with higher fee revenue from loan syndication,
securities underwriting and advisory activities and higher equity-related
investment revenue.
The following table sets forth certain key financial performance measures of
the businesses within Global Wholesale Banking for the periods indicated.
<TABLE>
<CAPTION>
1996 1995
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Net Efficiency Net Efficiency
Year Ended December 31, (in millions, except ratios) Revenues Income ROCE Ratio Revenues Income ROCE Ratio
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global Wholesale Banking:
Global Investment Banking and Corporate Lending $2,157 $ 686 19.1% 37% $2,007 $627 21.1% 36%
Global Markets 2,574 743 31.3 56 2,071 393 14.6 71
Chase Capital Partners 703 397 35.8 10 503 280 29.5 12
Global Asset Management & Private Banking 794 158 30.2 65 711 125 28.8 71
Global Services 1,930 255 22.7 79 1,735 220 19.1 80
Terminal Businesses (36) (100) NM NM 91 47 NM NM
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</TABLE>
Global Investment Banking and Corporate Lending: Global Investment Banking and
Corporate Lending finances and advises corporations, financial sponsors,
governments and projects by providing integrated one-stop financial solutions
and industry expertise to clients globally. Client industries include
broker/dealers, chemicals, healthcare, insurance, media and telecommunications,
multinationals, natural resources, oil and gas, power and environmental, real
estate, retail and transportation. The product offerings encompass syndicated
finance, high-yield securities, merger and acquisitions, project finance,
restructuring, private placements, lease financings and lending. The Corporation
is the global leader in syndicated finance, raising over $434 billion for
clients in 1996 as agent. Also, the Corporation is the market leader in
leveraged finance, raising over $55 billion in 1996 for the Corporation's
clients, including loans and high-yield securities. Net income in 1996 was $686
million, an increase of $59 million, or 9%, from 1995. These favorable results
were driven by 20% growth in corporate finance and syndication fees due to
increased market activity and broadened product offerings and client reach.
Global Markets: Global Markets' activities encompass the trading and sales of
foreign exchange, derivatives, fixed income securities and commodities,
including related origination functions. A leader in capital markets, the
Corporation operates 24 hours a day covering the major international
cross-border markets as well as many local markets in both developed and
developing countries. Global Markets is a recognized world leader in such key
activities as foreign exchange, interest rate swaps and emerging markets debt.
Also included within Global Markets are the domestic and international treasury
units which have the primary responsibility of managing the Corporation's
asset/liability and investment securities activities. The strong growth in
trading-related revenue contributed to a net income for 1996 of $743 million and
a return on common equity of 31%, a significant improvement from 1995's result
of $393 million and 15%, respectively. Trading-related revenue for 1996 was
$1,951 million, an increase of 27% from last year's results, driven by a strong
performance in emerging markets which recovered from the 1995 decline in the
prices of emerging market debt instruments. ALM activities in the treasury units
are managed on a total return basis, with one of the major objectives being the
creation of economic value over time. In 1996, the gross total return from
asset/liability management activities amounted to $475 million.
Chase Capital Partners: Chase Capital Partners ("CCP") is a global private
equity organization with approximately $4.0 billion under management, including
$2.8 billion in equity-related investments. Through professionals focused on
investing in the United States, Europe, Asia and Latin America, CCP provides
equity and mezzanine financing for a wide variety of investment opportunities.
During 1996, CCP's direct investments totaled a record $725 million in over 60
venture capital, management buyout, recapitalization, growth equity and
mezzanine transactions. CCP's net income for 1996 was $397 million, a 42%
increase from the prior year's results of $280 million. Return on common equity
rose to 36% from 30% in 1995. These improved results were attributable to higher
revenue derived from realizing gains on a broad-based portfolio of approximately
300 investments, during an active and favorable market.
Global Asset Management and Private Banking: The Global Asset Management and
Private Banking group serves a global client base of wealthy individuals,
institutional investors, mutual fund investors and self-directed investors.
Services include a full range of private banking capabilities, including trust
and estates, custody, corporate finance, capital markets, and other global
banking services; investment management for individuals and institutional
investors globally; Vista Family of Mutual Funds (at December 31, 1996, the
fourth largest bank-managed mutual fund family in the U.S.) and discount
brokerage. Total assets under management amounted to $126 billion at December
31, 1996. Net income grew 26% to $158 million in 1996, with a return on common
equity of 30%. A 12% growth in revenue was driven by higher revenues in trust
and investment management fees, Vista mutual fund fees and the discount
brokerage operations as well as by an 11% increase in loan volume.
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Global Services: Global Services is a leading provider of information and
transaction services globally. As the world's largest provider of global custody
and a leader in trust and agency services, Global Services was custodian for
over $3.6 trillion in assets at year-end and serviced over $1.4 trillion in
outstanding debt. Global Services also operates the largest U.S. dollar funds
transfer business in the world and is a market leader in FedWire, ACH and CHIPS
volume. Net income in 1996 was $255 million, an increase of $35 million, or 16%,
from 1995. Return on common equity for 1996 was 23%; excluding the impact of
goodwill, the return on tangible common equity was 31%. The 1996 results were
favorably affected by an 11% revenue increase reflecting the U.S. Trust
portfolio acquisition ($79 million); mutual fund and equity markets growth; and
the impact of industry consolidation in the securities processing business. New
business development in the cash management and trust businesses and higher
deposit balances across all businesses contributed to the current-year's growth
in revenue.
Regional and Nationwide Consumer Banking
The Regional and Nationwide Consumer Banking franchise includes the third
largest bank credit card issuer in the U.S., the third largest originator and
servicer of residential mortgages and a leading provider of auto financing and
other consumer lending products. The Corporation maintains a leading market
share position in the New York metropolitan tri-state area in serving the
financial needs of consumers, middle market commercial enterprises and small
businesses. It offers customers convenient access to financial services by
telephone, PC, and the Internet, and has the most branches and ATMs in the New
York metropolitan tri-state area. Additionally, included in RNCB is Texas
Commerce Bank, which is the second-largest bank in Texas and a leader in
providing financial products and services to businesses and individuals
throughout Texas. RNCB also includes a small international consumer presence
which is highly profitable.
For 1996, RNCB's operating net income was $1,343 million, an increase of $179
million over 1995. Operating return on common equity for 1996 was 20%, compared
with 16% in 1995. These favorable results were driven mainly by strong growth in
loan volume related to credit card and mortgage banking products, combined with
lower FDIC costs on customer deposits and the benefit of merger-related savings.
The following table sets forth certain key financial performance measures of
the businesses within RNCB for the periods indicated.
<TABLE>
<CAPTION>
1996 1995
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Year Ended December 31, Net Efficiency Net Efficiency
(in millions, except ratios) Revenues(a) Income ROCE Ratio Revenues(a) Income ROCE Ratio
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Regional and Nationwide Consumer Banking:
Credit Cards $2,663 $311 20.7% 38% $2,351 $337 26.8% 43%
Deposits and Investments 1,915 267 25.5 75 1,888 238 25.2 78
Middle Market 910 223 20.9 50 916 228 21.4 50
Mortgage Banking 652 110 8.3(b) 66 636 56 2.7 80
National Consumer Finance 600 147 32.2 39 531 117 25.2 38
International Consumer 254 64 82.0 57 210 43 78.9 65
Texas Commerce 1,233 272 19.2 63 1,125 208 15.0 70
</TABLE>
(a) Insurance products managed within Deposits and Investments, but included for
reporting purposes in Credit Cards, Mortgage Banking, and National Consumer
Finance, generated revenues of $81 million and $70 million in 1996 and 1995,
respectively.
(b) Excluding the impact of goodwill, the return on tangible common equity was
13% for 1996.
Credit Cards: For 1996, Chase Cardmember Services ranked as the third largest
bank card issuer in the U.S., with a $25 billion managed portfolio, inclusive of
the Shell MasterCard, which now totals $4.5 billion in outstandings. During
1996, the Corporation introduced a co-branded MasterCard with Wal-Mart, a
premier retailer of consumer-based products in the U.S., and announced a
partnership with First Data Corporation to establish a joint venture in the
merchant credit card processing business. For 1996, net income (reflected on a
managed basis) was $311 million, a $26 million decrease from 1995's results of
$337 million. Earnings were driven by the revenue generated from growth in the
loan portfolio offset by the start-up costs for the Wal-Mart MasterCard ($27
million after-tax) and a higher credit provision.
Deposits and Investments: At December 31, 1996, Deposits and Investments has the
leading share of primary bank relationships among consumers and small businesses
in the New York metropolitan tri-state area. In addition to its tri-state
businesses, the Corporation makes available insurance and investment products
nationwide. Deposits and Investments allows customers to choose the way they
handle their financial relationships, offering telephone, PC and Internet
banking, in addition to branches and ATMs. It is also developing a major
business in electronic payments, including its MasterDebit product and its 1997
electronic cash "Smart Card" pilot (through its investment in Mondex U.S.). Net
income in 1996 was $267 million, an increase of $29 million from $238 million in
1995. Return on common equity for 1996 was 26%, compared with 25% in 1995. The
improvement in net income was due to an increase in deposit and managed asset
volume and lower operating and FDIC expenses.
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Middle Market: At December 31, 1996, the Corporation was the number one middle
market bank in the New York tri-state area where it has relationships with 52%
of regional companies with sales ranging from $10 million to $500 million.
Credit reengineering initiatives, greater use of technology in service delivery
and focus on customer profitability and corporate finance products have resulted
in a strong efficiency ratio of 50%. Net income was $223 million for 1996
compared with 1995 results of $228 million. The results reflected lower spreads
on deposits and an increase in the credit provision resulting from lower
recoveries.
Mortgage Banking: At December 31, 1996, Mortgage Banking was the third-largest
originator and servicer of residential mortgage loans in the U.S., serving more
than 1.6 million customers nationwide. In 1996, $33 billion in loans were
originated and the Corporation's servicing portfolio totaled $141 billion at
December 31, 1996. Typically, the mortgages originated by the Corporation are
sold in the secondary market, while the Corporation retains the related
servicing rights. In addition, the Mortgage Bank also purchases and sells
mortgage servicing rights from and to other mortgage-related companies. Net
income improved in 1996 to $110 million, a $54 million increase from 1995.
Return on common equity rose to 8%; excluding the impact of goodwill, the return
on tangible common equity was 13%. The 1996 results were favorably affected by a
15% increase in average loan outstandings, improved loan spreads and lower staff
expense as the mortgage unit has begun to significantly restructure its
origination operations to lower its fixed-cost base as part of a restructuring
program to improve its overall returns.
National Consumer Finance: National Consumer Finance is a leading provider of
auto financing, home equity secured lending, student lending, unsecured consumer
lending (Chase Advantage Credit) and manufactured housing financing. At December
31, 1996, Chase Auto Finance ($11 billion in outstandings at year-end) was
ranked number one among noncaptive finance companies in new originations ($11
billion in 1996 originations). In 1996, the Corporation and the Student Loan
Marketing Association ("Sallie Mae") formed a joint venture (Educational First
Finance) creating the largest student loan origination business in the U.S. Net
income in 1996 was $147 million, an increase of $30 million from $117 million in
1995. Return on common equity for 1996 was 32%, compared with 25% in 1995. These
improved results were due to a 17% growth in loan volume and higher servicing
fees.
International Consumer: International Consumer provides deposit, investment and
insurance products for individuals in Hong Kong. Also included is The Manhattan
Card Company Limited (the Corporation's 54% owned subsidiary), which is the
third largest credit card issuer in Hong Kong. Additionally, the Corporation has
a leading full-service banking presence in Panama and the Eastern Caribbean,
providing deposit, investment and asset products for individuals, small
businesses, large corporations and government entities. Net income for 1996 was
$64 million, a $21 million increase over the prior year's results of $43
million. The increase in earnings was driven by increased loan and deposit
volumes.
Texas Commerce: Texas Commerce is the primary bank for more large corporations
and middle market companies than any other bank in Texas. Texas Commerce also
maintains a strong consumer banking presence in Texas through its 124 locations
statewide. Corporate/middle market revenues and consumer revenues contributed
48% and 36%, respectively, of Texas Commerce's 1996 revenue. Additionally, Texas
Commerce is the largest bank for personal and corporate trust services in the
Southwest. As of December 31, 1996, Texas Commerce had $23 billion in total
assets. Net income for 1996 was $272 million, a $64 million increase from the
prior year's results of $208 million. Return on common equity rose to 19%;
excluding the impact of goodwill, the return on tangible common equity was 25%.
The improved results were due to 12% growth in loan volume, higher corporate
finance fees, lower FDIC costs and the benefits of an aggressive expense
management program.
Corporate
Corporate includes the management results attributed to the Corporation's
investment in CIT and some effects remaining at the Corporate level after the
implementation of management accounting policies, including residual credit
provision and tax expense. The securitized portion of the credit card portfolio
is included in Corporate. Corporate also includes one-time unallocated special
items such as merger-related restructuring charge and income tax refunds. For
1996, Corporate had operating net income of $24 million, compared with $96
million in 1995. Due to the economic risk-based methodology for capital applied
on a business unit level basis for credit, market and operating risk, Corporate
housed unallocated equity of $1,887 million in 1996 and $950 million in 1995.
This reflects the significantly improved overall risk profile of the
Corporation.
B. PERFORMANCE TARGETS
The Corporation also announced its financial performance targets for the years
beyond 1998. These include: double-digit growth in operating earnings per
share; an efficiency ratio of 50%; and a return on average common stockholders'
equity of 18%-20%.
Management of the Corporation also discussed the status of the Corporation's
common-stock buy-back program, announced in October 1996. Management noted
that by the end of 1996, the Corporation has repurchased approximately $1.0
billion of common equity under the program and that management currently
anticipates the program will be completed by late 1997 or early 1998.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
THE CHASE MANHATTAN CORPORATION
(Registrant)
By: /s/ PETER J. TOBIN
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Peter J. Tobin
Executive Vice President and
Chief Financial Officer
Date: March 18, 1997
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