10/05 08:32 U.S. money center bank Q3 EPS seen sliding 45 pct
By Mary Kelleher
NEW YORK, Oct 5 (Reuters) - The biggest U.S. commercial
banks could see their earnings plummet as much as 45 percent in
the third quarter, after three months of painful trading
losses, stagnant investment banking and slower loan growth.
The banks, which had banner earnings growth last quarter,
are now suffering in areas like capital markets that were once
a boon to their results. At the same time, the core lending
business is starting to slip, analysts said.
Investors are already braced for the worst, after most big
banks warned last month of weaker results this quarter. The
banks blamed economic crises in emerging markets like Russia,
and Latin America, which created trading losses and enough
uncertainty in world markets to curb corporate finance.
Charges from writing down Russian debt, which many banks
have done after the paper was effectively devalued by that
government, as well as the completion of several merger deals,
including BankAmerica Corp. <BAC.N> and NationsBank Corp.,
could make quarterly releases messy, analysts said.
Wall Street will also be paying close attention to loans
the banks may have made to hedge funds, after a $3.6 billion
bail-out by leading banks of large troubled hedge fund
Long-Term Capital Management.
"I think the third quarter is going to show the impact of
the various market contagions and the mark-to-marketing of
securities that have gotten hit by it," Joel Silverstein, an
analyst at Prudential Securities said. "But we should not look
at the quarter as indicative of the group's earnings power."
The six money center banks -- Chase Manhattan Corp.
<CMB.N>, Citicorp <CCI.N>, J.P. Morgan & Co. Inc. <JPM.N>,
Bankers Trust Corp. <BT.N>, BankAmerica Corp. <BAC.N> and
Republic New York Corp. <RNB.N> -- could see earnings drop as
much as 45 percent in the quarter and 5 percent for the year
1998, according to First Call, which tracks analysts'
estimates.
The more money a U.S. banking company pulls from
market-sensitive businesses -- like fixed-income and emerging
markets trading, equity underwriting and other types of
investment banking, and loan syndications and securitizations
-- the worse it will fare this quarter, analysts said.
The bread-and-butter bank lending businesses are more
stable and should offset weaker results in fee-generating
operations, but there also some signs of slower loan demand and
margin pressure, they said.
"The main problem has been that the residual damage of weak
equity and bond markets has cut financings," Robert Albertson,
banking analyst at Goldman Sachs said. "If you're a bank, you
can also lend, and that's an offset."
Commercial loans are strong, but consumer lending continues
to lag and analysts point to margin and loan pricing pressure,
even while asset quality is solid and the big banks keep
expense growth under control.
"This quarter should include continued net interest margin
compression due to pricing pressures and a flat yield curve,
modest balance sheet growth and strong mortgage banking
activity," Chip Dickson, an analyst at Salomon Smith Barney
wrote in a research report.
Hardest hit will be Bankers Trust and J.P. Morgan, which
rely heavily on market-related operations like investment
banking and trading to turn a profit, analysts said.
Bankers Trust, whose debt has been downgraded by Standard &
Poor's rating agency, said last month it would post a net loss
in the third quarter and as of September 1 it had a
quarter-to-date trading loss of about $350 million.
The bank pointed to writedowns of Russian government
securities to 15 percent of face value, as well as tough U.S.
and other financial market conditions. Its investment banking
activity had also declined, the bank said.
"J.P. Morgan and Bankers Trust will have a lot tougher time
because they are much less diversified than Chase Manhattan
Corp. and Citicorp, and a greater proportion of their revenues
and earnings comes from trading," Stephen Biggar, an analyst at
S&P Equity Group, said.
Bankers Trust is expected to lose $3.39 a share in the
third quarter compared with a profit of $2.16 a share in last
year's third quarter, First Call said. At the start of the
third quarter, analysts had expected Bankers would earn $2.20
per share, it said.
J.P. Morgan, which said that at the end of August its
financial exposure in Russia was about $160 million and that
trading revenues were hurt by dealings in developed markets, is
expected to earn $0.76 a share in the third quarter compared
with $1.96 a share in last year's third quarter.
While Wall Street has done little but punish financial
stocks since these companies started revealing losses stemming
from emerging market volatility, most analysts said they did
not anticipate many new surprises in the quarterly reports.
"For the quarter we expect banks to generally report
earnings results not significantly different from what
investors expected in early August," George Bicher, an analyst
at Bankers Trust Alex. Brown said.
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BANK Q3 1998 FORECAST Q3 1997
Chase Manhattan $0.79 $1.13
Citicorp $1.51 $2.19
J.P. Morgan $0.76 $1.96
Bankers Trust loss $3.39 profit $2.16
Republic New York $0.05 $0.98 |
