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Big banks post 3Q profits
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October 16, 2000: 4:45 p.m. ET
Bank of America beats estimate, while Bank of New York matches forecasts
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NEW YORK (CNNfn) - Two of the larger U.S. banks reported third-quarter profits Monday that either met or beat forecasts, aided by higher fees from consumer banking and higher interest income -- even as rate increases from the Federal Reserve made it more difficult to profit from outstanding loans.
Bank of America Corp., the largest U.S. commercial bank, reported that its third-quarter profit fell 15 percent due to a restructuring charge and a drop in the value of its much-prized auto-leasing portfolio, worth about $10.9 billion. But the results still managed to top the analysts' estimate.
 Separately, Bank of New York reported third-quarter profit that met analysts' forecasts, as the bank benefited from revenue from processing transactions.
Investors reacted swiftly to both companies' reports -- negatively to Bank of America's and positively to Bank of New York's. Shares of Bank of America (BAC: Research, Estimates) slid $1.37 Monday to $45.19, while Bank of New York (BK: Research, Estimates) shares gained $2.19 to $53.31.
A runup in U.S. interest rates has made it harder for U.S. banks to earn profits. Higher rates make it more expensive for banks to borrow and push some borrowers to default. Bank of America also is trying to boost productivity and iron out wrinkles left from its own 1998 merger.
But for Bank of America, some analysts expressed disappointment that the company didn't hedge itself better against rising rates and the deteriorating quality of its loans.
Bank of America stock downgraded
"They are under-provisioning themselves," said Andrew Collins, an analyst with ING Barings. "Clearly they are having a revenue issue and they are trying to boost themselves," he said, adding that about 10 cents of the bank's per-share earnings "we thought were of questionable quality."
And the write-down of its auto loans came as somewhat of a surprise to analysts. Hefty incentives from automakers have meant inexpensive leases -- ones that have left the holders of those leases with more owing on the books than what those cars, trucks and S/UV's are collectively worth.
Collins downgraded Bank of America stock Monday to a "hold" from "buy," noting that even with rising interest rates the quality of the company's assets was not offset by an increase in revenue.
Bank of America's net earnings fell to $1.83 billion, or $1.10 a diluted share, from $2.15 billion, or $1.23 a share, a year earlier. The results included a $257 million pretax charge related to losses on some of its outstanding auto leases, and a $346 million after-tax charge to cover costs related to a restructuring of the company, which was announced last summer.
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Excluding the charges, operating profit totaled $2.18 billion, or $1.31 a share, above the $1.29 a share forecast by analysts polled by First Call/Thomson Financial. The Charlotte, N.C.-based bank has about $680 billion in assets and nearly 4,500 branches spanning 21 U.S. states.
Bank of America said in July it would cut up to 10,000 jobs, or nearly 7 percent of its work force, to pare costs and fuel revenue growth. It also said it would take a charge of up to $350 million for the layoffs.
Still, Jim Bradshaw, an analyst with D.A. Davidson & Co. in Great Falls, Mont., said Bank of America's revenue and credit-quality issues were more a reflection of rising interest rates and slowing growth.
"I think higher rates are already impacting their earnings," he said. "Margins have clearly contracted over the past year-and-a-half or so, and it's starting to have an impact on a lot of banks, not just Bank of America."
Bradshaw is hanging on to his "buy" rating for the stock, with a price target of $70 by the end of 2001.
Tom McCandless, analyst with CIBC Oppenheimer, agreed. "We were very favorably impressed with their numbers," he said. "The market is obviously very maniacally focused on the short-term view. We like the story, we like the stock and feel like people should be buying it here."
McCandless has a "strong buy" rating on Bank of America.
Bank of New York meets forecasts
Meantime, Bank of New York Co. Inc., the parent of one of the oldest U.S. commercial banks, said its third-quarter profit rose 16 percent, driven by strong gains in its loan operations and foreign exchange trading.
Income for its latest quarter rose to $363 million, or 49 cents a share, from $313 million, or 42 cents, a year earlier. The results matched the average forecast of analysts polled by First Call.
 ING's Collins took the opposite tact with Bank of New York, noting that its newly established niche as a processing company has helped boost their bottom line and offers an attractive return for shareholders.
"It's a tale of two cities at this point," he said, referring to Bank of America compared with Bank of New York. "Clearly Bank of New York's revenues were good. It is a very stable company, in our opinion, and shareholders will be rewarded."
Collins raised his estimate to $1.93 a share from $1.91 for this year and bumped his 2001 earnings estimates to $2.16 a share from $2.14. For 2002, he expects the company to earn $2.44 a share.
Bank of New York, with approximately $6.8 trillion in assets under management, collects fees for holding stocks and bonds for its clients and handling back-office clerical duties, including collecting dividend payments. 
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