First Chicago Corp.'s stellar second-quarter earnings, especially the strong showing in trading, venture capital, and credit cards, have given it a new gloss among investors.
The stock has risen 8.8% since the earnings report was issued on July 14, making First Chicago the hottest superregional stock.
Most bank stocks have slid sideways since releasing earnings. But in late afternoon trading on Thursday, First Chicago's shares were at $46.25, up $1.125.
Investors bid up the price of the stock primarily because the bank said it had $92 million in revenues from trading and foreign exchange last quarter. That's nearly three times the revenues from that period last year. By comparison, the bank's trading revenues for all of 1992 were $177 million.
Investors took notice, too, of other revenue gains. Equity gains from the venture capital portfolio last quarter were $42 million. And fee revenue from credit cards was $164.2 million, a 12% jump from the first quarter.
In all, the bank's quarterly earnings soared to $168.5 million from $34.5 million last year.
J. Richard Fredericks, an analyst with Montgomery Securities in San Francisco, said First Chicago is a better turnaround story than Citicorp, another hot stock.
First Chicago's shares sell at a lower price to book than Citicorp's shares - 124% versus 136%, Mr. Fredericks points out. Plus, First Chicago pays a dividend and Citicorp doesn't.
Also, First Chicago has moved faster in alleviating the burden of bad loans, Mr. Fredericks said. The Chicago bank's ratio of nonperforming assets in the second quarter was 1.7%, far better than Citicorp. And First Chicago could book profits from the sale of bad real estate loans, which were written down to about 54 cents on the dollar.
"I don't think enough people pay attention to First Chicago," said Mr. Fredericks.
Catching Eye of Investors
Last quarter's trading revenues helped changed that. First Chicago reported earlier than the big New York trading banks and its results caught investors attention. Of course, Citicorp, J.P. Morgan & Co., and Bankers Trust New York Co. had far bigger trading revenues last quarter.
"There is an argument to be made here that First Chicago has broken out of its historical range in the trading business," said Frank R. DeSantis Jr., an analyst with Donaldson, Lufkin & Jenrette Securities Co.
Trading revenues are always suspect on Wall Street. The question is whether they can be sustained over the following several quarters. And First Chicago has less of a track record in the business than the big trading banks.
For the past four years, First Chicago spent a good amount of money on the capital market area, but there was never a visible return," said Judah Kraushaar, an analyst with Merrill Lynch & Co.
Mr. Kraushaar said he isn't prepared to give the bank a vote of confidence based on one quarter's results.
The venture capital business, in which First Chicago holds stakes in other companies, is unpredictable as well. The gains in the past were around $25 million to $50 million per quarter, said analysts. So far this year, First Chicago has made $160 million from equity gains in the venture capital business.
However, the credit card business is seen as a growing business and a good one for First Chicago.
"That's a core business that isn't as cylical as trading," said Mr. DeSantis.