Investors flocked back into bank stocks Wednesday, apparently convinced that the industry has laid its cards on the table about losses from the Russian currency and bond debacle.
Chase Manhattan Corp.'s disclosure of Russia-related hits to revenue and earnings was expected to be the last in a string of such announcements by banks this week. Chase said its exposure in Russia and Asia dampened earnings from trading in July and August and would result in $200 million in net chargeoffs.
Citicorp, Bankers Trust Corp., J.P. Morgan & Co., BankAmerica Corp., Republic New York Corp., and BankBoston Corp. have made similar announcements in recent days.
Chase shares closed unchanged at $54.875 on the news after investors unloaded the stock last week on rumors the bank would take such a loss.
Shares of most other money-center and regional banks rose as investors concluded they represented bargains following the pounding they absorbed over the past few weeks. The Standard & Poor's bank index rose 1.3% and the Nasdaq bank index 3.3%, compared with a 0.6% fall for the Dow Jones industrial average.
But even as the trauma of recent events faded a bit, at least two influential analysts said they think big banks could be headed for an earnings slowdown next year.
Warburg Dillon Read's Thomas H. Hanley cut his 1999 earnings estimates for the money-center banks Wednesday because the U.S. economy may be "somewhat weaker than anticipated only a month ago," he said in a report to investors.
He sliced his 1999 estimate for Bankers Trust to $8.75 per share from $9.20; J.P. Morgan to $8 from $8.25; Citicorp to $4.55 from $4.90; Republic New York to $4.55 from $4.90; and BankAmerica to $5.60 from $5.70. And he cut his earnings forecast for Chase to $5.25 per share from $5.45. He retained his ratings on the companies.
David S. Berry, research director at Keefe, Bruyette & Woods Inc., also cut next year's earnings estimates for the money-centers. He downgraded Chase shares to "attractive" from "buy" and cut his 1999 estimate to $5.05 per share from $5.50. He reduced estimates for Citicorp to $3.70 from $4.25; J.P. Morgan to $7.75 from $8.50, and Bankers Trust to $7.50 from $9.25 per share.
"These 100-year storms in trading seem to be coming every year now," he observed.
In its announcement on Wednesday, Chase said its trading revenues for those two months amounted to $160 million, about half what analysts said they would consider normal for Chase. The bank was not specific about losses.
In addition, Chase disclosed that stock market volatility wiped out equity-related gains during July and August. Keefe Bruyette's Mr. Berry called that disclosure "startling."
In short, turbulent market conditions hit some of Chase's most lucrative wholesale businesses. Trading revenues were $517 million last quarter, or 10% of total revenues. Equity-related gains totaled $370 million last quarter, or 6% of revenues.
Chase said its credit exposure in Russia was $250 million at the end of August, compared with $500 million in the spring. An additional $210 million of exposure is in loans to hedge funds with investments in the region, the bank said.
Still, some Wall Streeters said Chase will not see a substantial hit to the current quarter's bottom line, because of the diversity of its businesses.
"It's manageable," said Bradley Ball, an analyst at Credit Suisse First Boston. "We are seeing relief buying, now that the facts have been revealed."
The "relief buying" spread throughout the entire banking group, as money-centers, regionals, community banks, and even thrifts all rose.
Even Donaldson, Lufkin & Jenrette Securities Corp. rose-by $1.75, to $34.125-after reporting that Russia's economic turmoil had hurt earnings the past two months.
Big regional banks such as First Chicago NBD Corp. and First Union Corp. got a boost after a report issued Tuesday afternoon by Salomon Smith Barney detailed the emerging market exposure of most regionals and determined it was generally negligible.
While investors seem to be warming up to financial stocks again, many questions were still being asked, and cautious bank managements were in no mood to take chances on misunderstandings about their emerging markets positions.
State Street Corp. released a statement Wednesday saying the current events in Russia and Latin America have had "no significant impact" on revenues and earnings, while the current events in Asia have had an "insignificant impact."
Analysts were unsurprised, since State Street makes most of its money from securities clearing and trust-related activities, which means its earnings have little to do with the value of emerging market currencies or securities.
Nevertheless, State Street officials said they felt that had to say something to calm an agitated market.
Similarly, National City Corp. said "in response to growing concerns" about emerging markets that it had no direct exposure to Russia and under $25 million of exposure to Asia and Latin America, mostly in the form of confirmed letters of credit issued for the benefit of domestic customers.
In other news, the impact of the falling market on bank mergers became apparent when Triangle Bancorp, Raleigh, N.C., agreed to up its offer to acquire United Federal Savings Bank of Rocky Mount, N.C.
United Federal agreed to sell to Triangle in March by swapping 0.945 Triangle shares for each of its own. But Triangle's stock has fallen 25% since the agreement was signed, and the minimum transaction price established in the merger agreement was violated.
To preserve the deal, Triangle agreed Tuesday evening to up its offer to 1.098 shares for each United Federal share, a 16% increase.