Big Regionals' 2Q Reports Expected to Be Mixed Bag

As the largest regional banking companies prepare to report second-quarter earnings in the next couple of weeks, feelings are mixed on whether some will be able to meet consensus estimates.

Jennifer A. Thompson, an analyst at Putnam Lovell Securities Inc., released her second-quarter earnings preview for superregional banks on Tuesday, predicting that the second quarter will prove to have been a tough one for the group. "We anticipate lackluster revenue growth and continued deterioration in credit quality metrics, offset to some degree by modest efficiency improvements," she wrote. "In the core banking business overall we expect to see some modest margin improvement" at most of the superregionals, she said, which should help offset the impact of a slowdown in loan-growth rates.

Though Ms. Thompson's report predicted that the worst may be over for banks with large corporate portfolios, institutions with loans to telecommunications and textile companies may not be out of the woods just yet because of problems in those industries, she wrote. The second quarter also saw some increases in pressure on middle-market corporate asset quality, she wrote.

"For those banks that wait 60 days to write off bankrupt credit-quality loans, like Bank One Corp., bankruptcies will hit the chargeoff line this quarter," Ms. Thompson added. The Chicago banking company has been busy of late trying to pare back its loan portfolio (see article on page 3).

Nevertheless, Ms. Thompson cut her 2001 earnings estimates for Bank One by 17 cents, to $2.48 a share, because of the company's sluggish revenue growth and asset-quality deterioration.

But Bank One isn't the only superregional that could miss estimates, according to Ms. Thompson, who also named Comerica Inc. and KeyCorp as institutions that could fail to hit consensus numbers. She estimates Comerica will earn $1.15 per share in the second quarter, 6 cents less than the first quarter and the same as the second quarter of last year.

But Comerica has at least one fan. Gary Townsend, an analyst at Friedman, Billings, Ramsey, disagrees with Ms. Thompson's outlook and has increased predictions for the Detroit banking company's earnings, to $1.18 per share. (Mr. Townsend is not betting the house, though - his prediction is a penny above consensus.)

Comerica does have its bright spots, Mr. Townsend said. "This is a good environment for them," he said. The acquisition of Los Angeles' Imperial bank, he noted, "is going well, and the interest-rate cut is helpful."

Ms. Thompson, meanwhile, has reduced second-quarter estimates by as much 5 cents on KeyCorp to reflect her belief, she said, that the Cleveland bank could get hit with a revenue slump in its investment banking unit.

"This year will clearly be a rebuilding year [for KeyCorp], in our opinion," she wrote, "and we believe investors may have to wait until 2002 for a clean, top-line-driven earnings-per-share growth."

KeyCorp, which recently announced $550 million of charges, has had a history of not meeting earnings numbers, according to Matt Snowling, an analyst at Friedman Billings, who is also predicting a second-quarter loss for KeyCorp.

"They've reported numbers that aren't hard to make," he said. "The question is does this mark the bottom, and is this the turnaround."

During a shortened trading session Tuesday in advance of Wednesday's holiday, Bank One fell 1.09%, Comerica fell 0.31%, and KeyCorp slipped 0.5%.

Ms. Thompson said he does anticipate some solid results from a few in the superregional banking group, including SunTrust Banks Inc., which is set to report on Friday (see article on page 1), First Union Corp., and U.S. Bancorp.

However, she said, the year will continue to be tough across the board as this "challenging earnings environment could last for a couple more quarters. However, she added, "stronger banks will be able to earn their way through economic and capital markets turmoil."

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