Bank One Bricks Another
By Brian Lund (TMF Tardior)
March 3, 2000
Bank One (NYSE: ONE), one of the nation's largest financial institutions and owner of First USA credit cards, offered their very observant investors guidance about first-quarter earnings today. In a tape-recorded message that appeared today on the company's investor relations page, Chief Financial Officer Robert Rosholt encouraged analysts to settle their consensus estimates for the first quarter "at the $0.60 level," rather than the $0.65 current average estimate.
If that sentence sounded circumlocutory, you should hear the message itself. The revision is buried under about four minutes of assurances about the company's soundness and positive outlook. Verne Istock, president and acting chief executive officer, spoke first, assuring investors that the company will be within the full-year earnings estimate range of $2.80 to $3.00. Istock said that all core elements are performing, that the current dividend will stay in place, and that the company is not for sale.
Rosholt spoke next. He verified the $2.80 to $3.00 earnings target, but, well, probably it's better to expect the lower end of that estimate. Oh, and by the way, change those first-quarter estimates to $0.60. The reason is that the company sees lower revenue from its First USA division -- again. The "return on outstandings," or the credit-card equivalent of return on equity, should be less than 0.5%, though Rosholt says that it should improve to the 1.5-1.75% industry average by the end of the year.
This "announcement" would not be very noteworthy, were it not the third time since August that we've heard about Bank One's troubles with its credit card division. First USA, the largest issuer of Visa cards, has 56 million card members and $70 billion in managed loans outstanding. In the third quarter, its revenues declined 25%. Back then, Fool writer Bill Mann celebrated Bank One's woes, which arose when customers rebelled against the company's especially aggressive fee policy. Stockholders lost 23% of their investment.
Then, in November, the company guided estimates down from $3.60 to $3.45-3.55 for the year and $0.78-0.88 for the quarter. Shares lost another 11%. Reason? First USA would produce 21% lower revenue. The company's results finished right at the bottom of the estimate range, but only thanks to an abnormally low and unsustainable tax rate, which lifted earnings by $0.02.
When Bank One issued its 1999 numbers in January, it estimated income for fiscal year 2000 in the $2.80-3.00 range, down from a previous $3.42. Now we hear that they'll still make that range, but they'll be lower in the first quarter. Am I the only cynic here who will believe that when I see it? At this stage, Bank One's evaluation of its future prospects has diminished credibility.
I don't revel in the company's troubles, but I do object to the company's method. Rather than put out a press release to let investors know that it was revising first-quarter estimates, Bank One simply put a button on their IR page. I found it only because Bloomberg spotted the story, probably after an analyst tipped them off. Bank One still lives in a world where analysts get the word before the public. They can claim that the public had access to the information, but, realistically, few would have found it.
The last two of Phil Fisher's 15 points -- as explained in his book Common Stocks and Uncommon Profits -- have to do with management's unquestionable integrity and its ability to communicate bad news openly. Anyone thinking of investing in Bank One should consider these two points very carefully. |
