Strong second-quarter earnings for banks should please investors, analysts say. However, slowing growth is clearly in the cards.
"The industry is doing extremely well," said Lawrence W. Cohn, equity research director at Ryan, Beck & Co., West Orange, N.J. At the same time, "the rate of change is starting to slow down."
"The industry had terrific growth" over the past two years that likely can't continue to be matched, he said.
A notable sign of change for some industry analysts is that Chase Manhattan Corp., parent of the nation's largest bank, could fail to reach its stated goals of 6% to 8% revenue growth and 5% to 6% underlying expense growth, analysts said.
It was "a challenging goal for them to meet in view of the excellent performance they had last year," said Diane B. Glossman, the money-center bank analyst at Salomon Brothers. She pointed out that Chase's stock has "already lagged" because investors are readjusting expectations, based on first-quarter numbers.
The consensus view of 16 analysts surveyed by First Call Inc. was that Chase's earnings per share would come in at $2.07, a 15.6% increase over last year's second quarter but just a dime above the first quarter's $1.97 per share.
Mr. Cohn said he thinks Chase will earn only $2 per share in the second quarter. "The company had a huge amount of securities gains in the first quarter, which are unlikely to recur," he said.
On the other hand, he said, expenses are continuing to come down in the wake of Chase's merger with Chemical Banking Corp.
Chase's big New York rival, Citicorp, "faces some of the same issues," said Mr. Cohn, including possible slowdowns in revenues derived from trading, foreign exchange, and loan syndications. And Citicorp's stock underperformed its peers in the second quarter.
Mr. Cohen's Citicorp second-quarter earnings estimate is "Street-low" at $1.80 per share, excluding nonrecurring income. The consensus of 17 analysts, according to First Call, is that the bank would earn $2.10 per share, a 9% increase from the first quarter.
One major banking company whose earnings are expected to disappoint is J.P. Morgan & Co. Lower trading revenues in April and May were a major culprit.
In addition, Mr. Cohn said, Morgan has been "growing its expense base at a rapid rate," as the company invests in several business lines.
"The result is that it's tough to see a lot of earnings leverage when revenues slow down," he said. Earnings per share are expected to drop to $1.76 from $2.14 a year ago, according to 12 analysts contacted by First Call.
Meanwhile, moderating economic growth, paired with low inflation and low unemployment, continue to spell good news for banks, analysts said.
Bank stocks rose Thursday, the last day of trading before the Fourth of July weekend, on news that the unemployment rate had ticked up slightly, to 5% in June from 4.8% in May, and payrolls rose by a smaller than expected 217,000. Hourly wages also rose less than expected, 0.3%.
The Standard & Poor's bank index increased 10.17 points, or 1.18%, while the S&P 500 was up 12.89 points, or 1.4%. The Dow Jones industrial average was up 100.42 points, to 7,895.80, another record.
