Banking Profits

This quote from a Business Week article summed up my thoughts exactly:

“There seems to be a conviction on the part of investors that you can’t make money in banks and banks are in trouble, even though every company that has reported to this point reported better earnings than expected,” says Richard Bove, an analyst with Punk, Ziegel & Co.

Despite all the concern over inflation and higher interest rates, the banking sector looks pretty good. Wells Fargo (WFC), SunTrust (STI) and Wachovia (WB) all reported good earnings.

“San Francisco-based Wells Fargo, the No. 5 U.S. bank, said net income rose to $1.98 billion, or $1.16 per share, from $1.75 billion, or $1.02, a year earlier.
Revenue rose 16 percent to $8.5 billion. Analysts polled by Reuters Estimates on average forecast profit of $1.15 per share on revenue of $8.07 billion.
The bank’s earnings per share have increased at least 10 percent in 15 of the last 16 quarters. Most of Wells Fargo’s consumer and commercial business lines posted double-digit profit growth and mortgage banking revenue nearly tripled.
“Interest rates remain at relatively low levels and consequently the mortgage business remains robust,” Chief Financial Officer Howard Atkins said in an interview. Wells Fargo, the No. 2 U.S. mortgage lender, took a $100 million charge for losses from Hurricane Katrina.
Minneapolis-based U.S. Bancorp, the No. 6 bank, said profit rose to $1.15 billion, or 62 cents per share, from $1.07 billion, or 56 cents. Analysts expected 61 cents.
Chief Executive Jerry Grundhofer said the bank benefited from higher fees from deposits, credit cards and debit cards, and declines in expenses and bad loans.
Atlanta-based SunTrust, the No. 7 bank, said profit rose to $510.8 million, or $1.40 per share, from $368.8 million, or $1.30. Excluding merger costs, profit totaled $1.42 per share, topping forecasts for $1.39.
Mortgages were “the biggest driver” behind a 33 percent surge in fee revenue, analyst Kevin Fitzsimmons of Sandler O’Neill & Partners LP said. SunTrust also benefited from its $7.4 billion acquisition last year of Memphis, Tennessee’s National Commerce Financial Corp.”

Business Week likes JP Morgan Chase (JPM), largely due to one man.

But the best reason for long-term investors to take a risk on JPMorgan Chase may be Dimon, who is slated to take over the CEO job from William Harrison, Jr., in June, 2006. A wunderkind with a knack for numbers, Dimon sharpened his talents for merging companies and cutting costs as Citigroup, where he was former CEO Sandy Weill’s right-hand man for many years.
But it’s his skill as a manager that has gone overlooked, says Jeffrey Cohn, managing partner of succession planning firm Bench Strength Advisors in New York.
“This guy has inspired Pied-Piper-like loyalty among his management team,” he says of Dimon. “He inspires people in a way that very few people can do.” Cohn believes the skill and experience of the operating team Dimon is assembling will show up in the next few quarters, even before Dimon takes the helm.
Bove notes that Dimon has “demonstrated that he has detailed knowledge of the business and a passion for solving business problems,” which makes him perfect for the task at hand at JPMorgan Chase.

JP Morgan Chase (JPM) and Bank of America (BAC) report tomorrow. My favorite is still Commerce (CBH).

Posted by on October 18th, 2005 at 3:16 pm


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