J.P. Morgan & Co.'s surprisingly strong profits stole the spotlight on Thursday, but solid earnings from SunTrust Banks Inc. and PNC Financial Services Group offered the strongest evidence yet that the industry may have dodged much of the second-quarter damage that Wall Street expected from credit-quality problems and interest rates.
SunTrust of Atlanta said its net income rose 8% from the year earlier, to $317.5 million, fueled by double-digit loan growth and cost savings. Excluding a one-time charge, earnings per share of $1.09 beat the consensus by two cents. Though suspected as a southern banking company that might have a rise in problem loans, SunTrust's nonperforming assets were flat from the first quarter.
Pittsburgh-based PNC's profits rose 8%, to $315 million, or $1.06 per share, on revenue gains in its investment management and processing businesses. The results were in line with analysts' expectations.
Morgan's profits were the highlight of the day. Its earnings rose 7.5%, to $542 million or $2.90 a share, as revenues from investment banking and proprietary activities helped offset a slump in its bond business. The performance handily beat the consensus estimate of $2.45 a share.
Based on earnings reports so far, the widespread fears about the damaging effect of turbulent markets on revenues and the state of commercial credit quality may have been overblown. Centura Banks Inc., which contributed to the uncertainty when it warned that its earnings would be sharply lower than estimates, matched its reduced target with profits of $28.7 million, or 72 cents per diluted share before charges.
Rising interest rates are still putting pressure on margins at regional banking companies, said Michael Plodwick, an analyst at UBS Warburg, "but I don't think credit-quality deterioration was as bad as people were fearing."
J.P. MORGAN & CO.
Revenues at Morgan rose 13%, to $2.5 billion.Noninterest revenues rose 26%, to $2.1 billion, driven by a 13% increase in trading revenues, to $906 million. Morgan, which has $265.9 billion of assets, also recorded a $128 million gain from venture capital investments, compared to a loss of $21 million the year earlier.
Overall, revenues were down from the first quarter, when stronger markets led Morgan and many other Wall Street investment banks to record profits. Despite the market slide in the second quarter, Morgan had a 2.4% gain in advisory and underwriting fees, to $468 million, and a 16.5% increase in investment management fees, to $303 million.
In its lines of business, Morgan said revenues from investment banking rose 4%, to $426 million, and revenues from equity trading rose 31%, to $504 million. Revenues from currency trading dropped 31%, to $384 million, and revenues from bond underwriting slipped 30%, to $348 million.
Shares of Morgan rose $1.5625, to close at $124.125.
SUNTRUST BANKS INC.
SunTrust's net income included a $11.8 million merger-related charge.The gains came "despite a rising interest rate environment, due to solid loan growth, cost savings associated with the acquisition of Crestar, and continued strong credit quality," said L. Phillip Humann, chairman and chief executive officer of the $99.8 billion-asset company.
Net interest income declined 2%, to $778.7 million, largely because of the sale of the company's credit card portfolio but also because of the impact of rising interest rates. Loans grew 13%, to $69.8 billion. Net interest margin narrowed to 3.55% from 3.92%.
Fee income dropped 2%, to $444 million because of lower fees from mortgages. Corporate and institutional investment services fees doubled, to $35.3 million, and retail investment services fees rose 18%, to $30.6 million.
Nonperforming assets declined 2% from the first quarter, to $305.7 million.
Shares of SunTrust fell $1.125, to close at $47.625.
PNC FINANCIAL SERVICES GROUP
PNC, with $75.7 billion of assets, attributed the gains in the quarter to the performance of its fee-generating asset management, investment banking, and processing operations.Noninterest income rose 28% from last year's second quarter, to $796 million, and made up almost 60% of total revenues. Asset management fees rose 16%, to $196 million, and assets under management rose 19%, to $224 billion. Shares of PNC fell $2.1875, to close at $49.
For more earnings data, go to the Ranking the Banks section of americanbanker.com.