A surprisingly strong earnings report by Lehman Brothers last week fueled upbeat expectations about first-quarter results for most financial services companies.
The New York brokerage reported earnings for the quarter ended Feb. 29 that were more than double those for the same period the year before, confirming once again that a rising stock market lifts profits for Wall Street firms.
"The industry had a very strong January and February - and February was blessed with an extra day of trading," said Perrin Long, an independent analyst based in Darien, Conn., who covers brokerages.
Brokerages and investment banks "are going to have good results - in most cases higher than a year ago," Mr. Long said. The stock market's sharp downturn March 8 will have only a negligible impact on earnings, he said.
The only pitfall for some firms would be trading problems stemming from the upward trend of interest rates in March.
Mr. Long's comments were echoed by analysts covering banks, thrifts, mortgage banks, and specialty finance companies. The only category of financial services firm expected to post weak results is the insurance group, which may have been hurt by claims due to bad weather.
"When first-quarter results come in, I think you'll see some earnings revisions downward" for insurance companies, said Charles M. Vincent, an analyst at PNC Investment Management and Research.
The only insurance company that might provide a pleasant surprise would be AIG Group, Mr. Vincent said. AIG is "more balanced toward international" than its competitors and therefore less vulnerable to the U.S. weather problems, he said.
Optimism about bank earnings also is on the rise. Bank stocks made a strong upward move early last week as analysts began to focus on the potential for another good quarter driven by continued loan demand, relatively low loss rates, and a strong trading environment early in the quarter.
Thrifts and mortgage banks also should do well, said Jonathan Gray of Sanford C. Bernstein & Co.
"Although rates backed up sharply in March, origination volumes are most likely surging, reflecting the drop in rates early in quarter," Mr. Gray said.
The Federal National Mortgage Association and Federal Home Loan Mortgage Corp., which buy 50% to 60% of fixed-rate loans, also are in a good position to post strong quarterly results, Mr. Gray said.
Mortgage rates rose from below 7% to 7.83%, he said, but the increase could be beneficial.
"Rates have backed up due to evidence that the economy is firming," he said, arguing that a stronger economy would mean lower credit losses.
Record earnings in the quarter ended in February for Countrywide Credit Industries is further evidence of strength in the mortgage business, Mr. Gray said.
Specialty finance companies appear to be enjoying a good quarter as well, said Michael Diana of Bear, Stearns & Co., noting unusually wide spreads on securitizations.
Mr. Diana predicted that all the companies he follows - including Green Tree Financial Corp., the Money Store, Olympic Financial Corp., Oxford Resources Inc., Aames Financial, the United Cos., Conti Financial, and RAC Financial - would beat consensus estimates.