|
Banking on earnings woes
|
 |
September 4, 1998: 2:11 p.m. ET
Money centers and investment banks face more analysts' estimate cuts
|
NEW YORK (CNNfn) - Things got a little worse for the struggling banking sector Friday after another analyst cut his ratings on a number of banks and brokerages, citing concerns over exposure in emerging markets and U.S. equities.
Steven Eisman, an analyst at CIBC Oppenheimer, lowered his 1998 and 1999 earnings per share estimates by 10 to 20 percent across the board.
Among the firms cited in his report were J.P. Morgan & Co. (JPM), for which he also lowered its rating to "hold" from "strong buy"; Bankers Trust Corp. (BT); Bear Stearns Co. (BSC); Morgan Stanley Dean Witter & Co. (MWD); PaineWebber Group Inc. (PWJ); and the merged Travelers Group Inc. (TRV) and Citicorp (CCI) unit.
"These stocks have gotten annihilated and the operating environment has gotten much more difficult," Eisman said in his report.
He added that while he does not expect major write-offs at the investment banks, their earnings will be lower because "the equity underwriting environment is weak and fixed-income client trading flows are lower."
Eisman also pointed out that institutions such as Bankers Trust and J.P. Morgan will suffer the most. "They have exposure to a declining equity underwriting environment, a more difficult trading environment and they have exposure to Asia and Latin America," he said.
The banking sector as a whole has been battered in the past six weeks as investors fear institutions' vulnerabilities to emerging markets, particularly Latin America, and declines in U.S. equity markets.
Warburg Dillon Read analyst Thomas Hanley, also cut his bank estimates across the board, though he said much of the fears associated with the sector are psychological rather than being rooted in actual numbers.
"The hit to earnings on American banks because of Russia will be $1.04 billion to American banks, but the hit to the market capitalization [of the sector] has been $70 billion in the last six weeks," Hanley said. "I'm not saying the problems [overseas] aren't real, but we're dealing in an emotional environment right now. It will take some time to calm things down."
Hanley said the sector's recovery will largely depend on how much pressure the U.S. can apply to Japan to stabilize its banking sector.
"What's driving the market is a wall of worry," Hanley said. "It starts in Japan, works its way through China, Southeast Asia and Latin America. It's a vicious cycle that has to be broken, and Japan holds the key to doing that."
Stephen Biggar, an S&P Equity Group analyst who also cut banking estimates by as much as 30 percent, said the sector will begin staging a comeback when companies begin quantifying third-quarter losses and their exposures to Latin America.
"There's an air of uncertainty right now," he said. "I'm hoping that when every U.S. bank with overseas trading begins quantifying the impact, that will be the end of it." 
-- by staff writer John Frederick Moore
|
|
|
|
|
|
CIBC Oppenheimer
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
