A handful of banking companies stand to get a big boost in their earnings per share — especially for next year — thanks to new accounting standards put in place in early July by the Financial Accounting Standards Board.

The problem is, few analysts are taking this into account. This is giving Chuck Hill, the director of research at First Call/Thomson Financial, a big headache. Mr. Hill said he is being forced to devise two sets of 2002 consensus estimates to use while Wall Street analysts make up their minds as to when they will come up with revised outlooks that reflect the new standards.

“The old numbers are moot,” he said. “I’m surprised many analysts haven’t done it sooner.”

Some analysts who have already redone their calculations say the situation is creating havoc, and wide ranges of estimates are cropping up.

Jefferson Harralson, a bank analyst at SunTrust Banks Inc.’s Robinson Humphrey Co. investment banking unit, said his company’s research staff is revising many of its estimates up for next year to take the new standards into account. “Current First Call 2002 earnings per share estimates are a mess because not all analysts have switched,” he wrote in a research note last week.

Some bankers are puzzled by the delays, too, and they say the confusion will affect investor sentiment for this year’s earnings per share.

At a meeting in New York last week with analysts and the news media, Steve Elliott, the chief financial officer of Mellon Financial Corp., said the estimates Wall Street companies were reporting to First Call seemed to be inconsistent, because the companies failed to say whether the numbers reflected the “old” or “new” generally accepted accounting principles.

He also said he did not agree with the current consensus estimate for his company’s per-share earnings this year, $1.82.

“I’m not sure consensus has caught up,” Mr. Elliott said. Analysts “have to adjust their numbers to new GAAP.” By Mellon’s own calculations, this year’s estimate should be at least $1.83, and if the effects of gains from divestitures are taken into account, the number could reach $1.90.

The new standards eliminated the pooling-of-interests method for accounting for mergers and thus removed the need for banking companies to amortize goodwill in their reported earnings per share from quarter to quarter. This will translate into big benefits for some of the most acquisitive companies, according to the few analysts who have published reports on the subject already.

Lori Appelbaum, an analyst at Goldman Sachs Group Inc., said First Union Corp.’s consensus earnings estimates could jump 12% as a result of the new standards. She has raised her profit target for the Charlotte, N.C., company for next year by 12.4%, to $3.09 a share.

Similarly, Wells Fargo & Co.’s consensus estimate for next year could rise 10%, to $3.58 a share, according to Ms. Appelbaum.

Other companies could benefit as well. Ms. Appelbaum has raised her 2002 earnings targets for two banking companies by 9% to reflect the new standards — Huntington Bancshares Inc. in Columbus, Ohio, to $1.37 a share, and Mellon, to $2.77 a share.

Mr. Harralson now estimates that National Commerce Financial Corp. of Memphis will earn $1.61 per share next year under the new rules, up 11% from his target under the old standards. He has also raised his 2002 estimate for Cullen/Frost Bankers Inc. of San Antonio by 6%, to $2.53 a share.

Some analysts say the new accounting standards could provide a needed boost this year for banking companies, which have had lackluster revenue growth.

“The trick du jour is to make up earnings shortfalls with new GAAP,” said Michael Mayo, an analyst at Prudential Securities.

What the new standards will almost certainly accomplish is to push investors to look more closely at cash earnings per share in the future.

Under the old standards, cash earnings per share were typically much higher than actual earnings, because cash earnings do not take intangibles into account. But under the new standards, the earnings figures will look a heck of a lot more like cash earnings, so much so that now analysts are recommending the latter as a better measure of performance.

“Investors should start valuing banks on cash earnings per share,” Ms. Appelbaum wrote in a research note.

“By the end of the year, everyone will probably be using cash earnings,” Mr. Mayo said.

Some onlookers aren’t so certain. Mr. Hill said cash earnings are a big focus for tech investors, but it may take bank investors a little more time to get used to the concept.

“There’ll be some sort of reaction, but maybe people will say, ‘Hey, this stuff shouldn’t be excluded,’ ” he said. “It remains to be seen.”


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