Business Notes BANKING

As the real estate slump deepens, it is sending U.S. bank profits into the cellar. Last week Manhattan-based Citicorp, the largest U.S. bank holding company, blamed $573 million in bad real estate loans for a 38% decline in third-quarter earnings, which fell to $221 million. Chemical Banking Corp. reported a $43.7 million loss for the third quarter and slashed its quarterly dividend on common stock from 68 cents a share to 25 cents a share. In Los Angeles, Security Pacific's profits for the quarter dropped 27%, to $135 million. Other banks are expected to report substantial losses in the coming weeks.

To cushion themselves against a rise in sour loans as the U.S. economy slumps, many banks are increasing their capital reserves. For example, Citibank said last week it has more than quadrupled its reserve for losses on commercial loans from $59 million a year ago to $283 million. Banks are also clamping down on new lending. But while these moves will strengthen the banks, tighter capital is beginning to put the squeeze even on healthy industries. !