Third-quarter results of big New York trading banks are expected to get a boost from an unusually volatile summer in the bond and currency markets.
Trading revenues at these and other banks have soared in recent quarters, and another strong performance could buttress the banks' case that hefty trading profits are sustainable, though not necessarily at the recent lofty levels.
Higher Earnings Estimates
A number of Wall Street analysts have already ratcheted up their third-quarter earnings estimates, while others are in the process of reviewing their numbers.
"Clearly, we had a very strong quarter for trading," said Raphael Soifer of Brown Brothers Harriman.
On Wednesday, Mr. Soifer boosted his earnings estimates for the three banks whose bottom lines are the most sensitive to trading results - Bankers Trust New York Corp., Citicorp, and J.P. Morgan & Co.
Mr. Soifer now expects Bankers Trust to earn $2.60 a share in the third quarter, compared with his previous estimate of $2, while he raised his earnings estimates for Citicorp to 75 cents a share from 62 cents, and his Morgan estimate to $2 a share from $1.43.
After jumping $2.125 Wednesday to close at $78.25 a share, Bankers Trust was off 25 cents late in the day Thursday at $78 a share.
Morgan's stock, which rose by $1.875 to $75.75 on Wednesday, fell back yesterday to 75.125, off 62.5 cents. Citicorp, up 37.5 cents at $36.25 Wednesday, gave back 25 cents a share Thursday, falling to $36.
Despite the anticipation of another strong trading quarter, some Wall Street analysts said the exceptional results eventually will fall back to earth.
Just last week, Lawrence Cohn at Painewebber Inc. lowered his investment ratings on Bankers Trust and Morgan to "unattractive" from "neutral," arguing that the "environment for trading gains in the third quarter has been about as good as it possibly can be."
At the same time, Mr. Cohn said he wouldn't be surprised if Bankers Trust's third-quarter earnings approached $3 a share, though his official estimate remained at $2.25, which was based on the apparently erroneous assumption that trading results would be only average.
Similarly, Mr. Cohn suggested that his third-quarter earnings estimate for Morgan could be well south of the mark.
No Repeat Seen in'94
In the case of both banks, though, Mr. Cohn said it is unlikely that 1994 will match this year's performance.
Mr. Soifer agreed that recent trading results appear to be "above trend," and should not be fully reflected in the banks' share prices.
Still, Mr. Soifer continues to recommend purchase of both Bankers Trust and Morgan, while he is neutral on Citi.
At Merrill Lynch & Co., Judah Kraushaar rates Morgan a "strong buy" while he is somewhat less bullish about Bankers Trust and Citi.
Mr. Kraushaar said he is reviewing his third-quarter earnings estimate for the three banks, in light of the anticipated strong trading results.
Bank stocks were mixed in uneventful trading Thursday. At the close of trading, the Dow Jones Industrial Average was off 7.27 points at 3539.75.
In late trading, Mellon Bank Corp. was up $1.125 to $54.875.
First of America, which received a |buy' recommendation earlier in the week from UBS Securities Corp., gained $1.375 to $40.75, A block of 300,000 shares, equal to 0.5% of shares outstanding, was traded Thursday at that price. The stock gained 75 cents on Wednesday.
Among those that lost ground was MBNA Corp. The shares were off 87.5 cents, to $33. The stock, which ran up this summer, has been fluctuating lately.