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Banks cash in during 2Q
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July 19, 1999: 1:43 p.m. ET
Cost cuts, merger benefits and hot economy lift financial heavyweights
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NEW YORK (CNNfn) - Big banks Monday reported second quarter earnings that beat or met Wall Street forecasts, riding the nation's economic boom and reaping benefits from mergers.
Rolling out the earnings picture for the second quarter Monday were two New York-based kingpins of the sector, Citigroup (C) and J. P. Morgan Co. (JPM), and regional powerhouses Wells Fargo (WFC) and Bank of America (BAC).
Citigroup's net rose 21 percent; J.P. Morgan reported a gain of 25 percent in income before one-time items; Wells Fargo and Bank of America said earnings rose 29 and two percent, respectively.
"It's strong across the board," added Diane Glossman, an analyst at Lehman Brothers. "We're seeing double-digit growth -- that's pretty dramatic -- and strong growth on the consumer side."
Citigroup, the product of a gargantuan merger between Travelers Group and Citibank, cited cost cutting and consumer-segment growth as it topped analysts' earnings targets by six cents per share.
Citigroup, which offers retail banking through its Citibank unit -- part of its array of financial services including brokerage and insurance -- posted earnings of $2.5 billion, or 71 cents per share, up from $2.1 billion, or 57 cents per share, a year ago.
Glossman said she raised her earnings target on Citigroup by 15 cents a share this year and in 2000, to $2.80 per share and $3.20 per share respectively.
J.P. Morgan, meanwhile, said its net earnings, outside of one-time items, ballooned 25 percent to $504 million, or $2.52 per diluted share, compared to $481 million, or $2.36, a year ago. A booming stock market powered J. P. Morgan, rumored as a top takeover target, to income that was a hefty 28 cents per share above analysts' estimates.
Handling their recent mergers in stride were two more regionally minded banks.
Bank of America topped targets by a penny per share, as it ties up merger partners BankAmerica and NationsBank. And Wells Fargo, which is reining in Norwest, beat the Street by a penny, at 55 cents per share, behind a 29-percent gain in net income.
Bank of America, the nation's largest bank, said operating earnings rose to $2.1 billion, or $1.15 per diluted share, up from $2.0 billion, or $1.13, a year earlier.
And Wells Fargo, the nation's No. 5 bank, said earnings rose to $931 million, or 55 cents per share, up from $719 million, or 43 cents per share, a year ago. The San Francisco bank said strong results in its consumer business powered the gains.
Retail bank Bank of New York (BK) said profits rose 10 percent to 42 cents per share in line with targets, on growth of fee-based services. Smaller-fry Northern Trust (NTRS) of Chicago said profit per share rose 15 percent to 86 cents, topping the analysts' targets by a penny.
Analysts said the second-quarter reports suggest a rosy outlook for banks for the rest of 1999.
"The earnings are pretty good -- either in line or better than expected," said Ron Mandle, a banking sector analyst at Sanford Bernstein. "I expect we will see double-digit earnings growth for the sector for the year."
Powering the gains in part, analysts said, was the still-robust U.S. economy, which means borrowers are healthy enough to repay their loans on time -- just as overseas markets are getting back on their feet.
"To some extent, at BA, Citi and Morgan, top line growth is related to recovery in the markets," said Glossman, adding a healthy U.S. economy is also a factor. "Credit quality remains outstanding, and that's one of the reasons bank profitability remains high."
"Asset quality was better than expected, and there was a drop in consumer charge-offs," added Henry Dickson of Salomon Smith Barney, which is a unit of Citigroup.
In an indicator of optimism about what may be a budding global rebound, J.P. Morgan lowered its bad-debt provision by $70 million, a sign the bank sees overseas economies improving and requiring less of a set-aside for global credit risk.
That, however, is just a one-time benefit, analysts said, and shouldn't be seen as an indicator that earnings will be better because of improvements in overseas economies.
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