In a new blow to its credibility on Wall Street, Bank One Corp. again guided analysts to reduce their expectations for first-quarter earnings, prompting still more questions about the company's ability to repair its First USA credit card operation.
The warning, which came in the form of a recorded telephone call by chief financial officer Robert Rosholt on Friday, counseled Wall Street analysts to bring first-quarter estimates to the low end of a range that Bank One laid out in January.
In the call, Mr. Rosholt indicated that First USA - whose disappointing results led to a management upheaval at the company last year - was at least part of the problem.
"The card business is sensitive to interest rates, which have been increasing lately," said Mr. Rosholt. First-quarter earnings will be the weakest of the year because of seasonal factors, he said.
The rate environment has been particularly difficult for First USA, analysts said.
"It's because they're trying to restructure their product and their pricing on their product at a time when interest rates are higher," said Catherine Murray, an analyst at J.P. Morgan. "Other card businesses are priced according to their customer base and aren't trying to change that in an increasing interest rate environment; that's why they aren't being adversely affected by the rise in rates."
In the backdrop, there were also more signs that competitors were benefiting from First USA's troubles. Morgan Stanley Dean Witter analyst Kenneth A. Posner, who last week upgraded MBNA to a "strong buy," said the problems at Bank One were helping the rest of the industry in general and MBNA in particular.
"We can now say that First USA is pulling back from affinity marketing, which is going to create significant benefits for MBNA," Mr. Posner said.
In January, Bank One provided analysts with a range of 60 cents to 70 cents for first-quarter earnings estimates. Friday's call was prompted when executives noticed that many analysts had put their estimates in the middle to high part of the range, which was 62 to 69 cents, according to First Call/Thomson. In the call, Mr. Rosholt said he would "expect and encourage" analysts to bring their first-quarter earnings-per-share estimates to 60 cents.
Executives said the earnings outlook for the year would remain $2.80 to $3 and said the company's core business lines - including First USA - are still on track.
Bank One also resisted calls for a major stock buyback, despite a share price that has fallen more than 50% since the company announced its first earnings shortfall, in August 1999.
"Capital strength is going to be extremely important to this industry over the next couple of years," Mr. Rosholt said. "We obviously believe our stock is extremely inexpensive. Nevertheless, we have to be careful about taking short-term advantage of this fact outside the context of a disciplined approach to overall capital management."
On Wall Street, frustration over the slow progress was evident.
"Bank One basically said that we are standing by the low end of our earnings estimates range. We are not for sale, and we are not going to buy back shares. Everything is great, so trust us," said Sean J. Ryan, who heads up his own independent research firm Byrne, Ryan & Co. in White Plains, N.Y. "That's unsettling. I am skeptical that they will make those numbers and skeptical that this problem is localized only in their card division."
