Shares of Bank of New York Co. surged on Tuesday after the company told Wall Street analysts it is sharply raising its own profitability targets.
The stock was ahead $1.25 to $53 in late trading on brisk volume - on a day when bank shares were up moderately and the overall market was down. However, Bank of New York shares remain under the yearend price of $53.87 after a 16.2% fall during the recent slump in banking issues.
The bank hopes to achieve returns of 17% on equity and 1.4% on assets in the next two years, analyst said, which would likely place it among the most profitable large banks in the country.
During the first quarter, Bank of New York earned 15.5% on equity and 1.2% on assets. That compares with composite returns for the nation's top 50 banks of 14.5% on equity and 0.89% on assets, according to Keefe, Bruyette & Woods Inc.
|Buy' Rating Repeated
The immediate boost for the stock on Tuesday came from Brent B. Erensel and Michael L. Mayo of UBS Securities Inc. They repeated their "buy" rating on the stock, saying they "strongly believe Bank of New York will show 20% earnings per share growth over each of the next two years."
At a luncheon on Monday, the bank also said it expects strong results more quickly, when second-quarter earnings are announced in July.
"They indicated that nonperforming assets are declining at twice the rate of the first quarter and that they may achieve their yearend target on credit quality by June," said George M. Salem of Prudential Securities Inc.
Lower Provision Possible
That should enable the bank to lower its quarterly provision against loan losses, which would help earnings. Mr. Salem estimated the provision may be $70 million rather than the $90 million provided in the first quarter, which would be equal to 15 cents per share.
Moreover, the bank is calling in some preferred stock, effective June 1, a move that will boost earnings the equivalent of 2 cents per share per quarter.
"Their outlook is very good," said Mr. Salem. "If this is what is meant by deteriorating fundamentals for banks, the bears on the industry had better get some new glasses."
Mr. Salem is sometimes bearish himself and concerned about a long-term "erosion of profitability and competitiveness" in the industry.
Credit Cards a Boon
However, he called Bank of New York one of his favorite bank stocks and rates it a "buy."
Another analyst who attended the lunch, Lawrence W. Cohn of PaineWebber Inc., said the bank is benefiting from, among other things, a strong credit card business and its dominance in American depositary receipts.
"They are gaining market share from a low-priced credit card written to tight credit standards," he said.
The bank is also positioned to benefit from a trend toward international investing, he said. Bank of New York holds 60% of the market in depositary receipts, the easiest way for investors to buy foreign stocks.
Citicorp and J.P. Morgan & Co. are the other key players in ADRs.