Banks Gain From Strong Retail Operations
Strong performance in retail operations boosted earnings of the nation’s banks in the first quarter, but not enough in some cases.
Bank One Corp.‘s profits rose in the first three months of the year, but it missed analysts’ expectations by a penny, according to an earnings report released Tuesday. Wells Fargo beat projections by a penny.
Meanwhile, Mellon Financial Corp. and State Street Corp. _ investment management and service firms _ both reported a drop in first quarter profits because of weak fee income.
On Monday, Citigroup and Bank of America Corp. reported first quarter profits above analysts’ estimates. Profits at FleetBoston Financial Corp. fell, but were in line with projections.
Bank One Corp.’s first-quarter profits rose 4 percent, but fell a penny short of the consensus estimate of analysts surveyed by Thomson First Call. The Chicago-based bank blamed the weak economy and credit-card pricing pressures.
Net income totaled $818 million, or 71 cents a share, in the January-March quarter, up from $787 million, or 67 cents a share, for the same period a year earlier.
Its shares fell 69 cents, or nearly 2 percent, to $36.16 on Tuesday on the New York Stock Exchange.
Goldman Sachs analyst Lori Appelbaum said results were ``a little weaker than expected,″ and said competitive pressures on Bank One’s credit-card business are clearly apparent. She said the highlight of the quarter was the decline in commercial banking credit losses.
Researchers at UBS Warburg, which rates Bank One shares at ``neutral,″ said: ``Although Bank One has one of the strongest balance sheets in the industry (capital and reserves), we still look for signs of better revenue growth before becoming interested in the stock at current valuation.″
Revenue at the nation’s sixth-largest bank holding company fell to $3.98 billion from $4.17 billion.
Bank One said half the revenue decline resulted from actions taken to position the company for rising interest rates. It said the rest was largely the result of intentional reductions in loan portfolios.
``Our performance this quarter was mixed,″ chairman and chief executive officer James Dimon said.
``Prudent credit risk management, cost containment, and account and balance growth in card, home equity and demand deposits positively contributed to our first quarter,″ Dimon said. ``However, loan growth was limited and transactional volumes declined, somewhat due to the weakened economy.″
Bank One posted an 8 percent increase in retail banking income and said net charge-offs declined 23 percent from a year earlier. Charge-offs also were down by more than 50 percent in commercial banking, which Bank One attributed to continued efforts to improve risk underwriting.
Net income fell 21 percent in Bank One’s investment management unit, which it blamed on the weak stock market.
Wells Fargo & Co. earned $1.49 billion, or 88 cents per share, for the three months ended March 31, a 35 percent improvement from net income of $1.1 billion, or 64 cents per share, a year ago.
The results for the San Francisco-based bank were a penny higher than predictions from analysts surveyed by Thomson First Call.
Its shares rose 65 cents, or 1.4 percent, to $47.45 on the NYSE.
Despite the sour economy of the past few years, Wells has prospered with a financial recipe emphasizing banking basics such as home mortgages, credit cards and checking accounts.
Wells’ first-quarter revenue totaled $6.51 billion, a 9 percent increase from $5.96 billion a year earlier.
The bank’s revenue growth has been hovering at around 10 percent since the 1998 arrival of a new management team as part of a merger between Wells and Minneapolis-based Norwest.
Under the leadership of former retailer Dick Kovacevich, Wells began referring to its offices as ``stores″ instead of ``branches″ to punctuate a more aggressive sales approach.
``We continue to be optimistic about the future because of our proven business model,″ Kovacevich said.
A 40-year low in mortgage rates has played an important role in the bank’s recent prosperity: the bank originated $103 billion in mortgages in the first quarter, just below its record volume of $112 billion in the final three months of last year.
Mellon Financial Corp. reported a drop in first-quarter profits as revenues generated from fees continued to slip.
The Pittsburgh-based financial services company said net income totaled $161 million, or 37 cents per share, in the January-March period, down 25 percent from the $216 million, or 48 cents a share, in the first quarter of 2002.
Excluding a charge of $7 million for an accounting change, first quarter earnings were $167 million, or 38 cents a share. That was a cent above the 37 cents projected by analysts surveyed by Thomson First Call.
Mellon Financial’s shares gained $1.29, or more than 5.5 percent, to $24.59 on the NYSE.
Revenues generated by fees slid for the second consecutive quarter, the company said. Mellon said revenues from fees fell 11 percent in the first quarter following a 7 percent drop in the fourth quarter.
``The decline reflects the weak market and economic environment impacting all of our businesses as well as lower levels of performance fees during the quarter,″ the company said.
Martin G. McGuinn, Mellon chairman and chief executive officer, said: ``We will continue to balance the short-term environment with long-term growth opportunities, aligning expenses and investments to reflect lower-growth revenue trends.″
State Street Corp.’s first quarter earnings were reduced in part by costs related to integrating the Global Securities Services business, which State Street acquired from Deutsche Bank on Jan. 31.
State Street said net income totaled $96 million, or 29 cents a share, in the first quarter, down from $178 million, or 54 cents a share, a year earlier.
That was in line with the lowered forecast of 27 cents to 29 cents a share it announced in March.
Its shares finished the day up 49 cents, or about 1.5 percent, at $33.68 on the NYSE.
State Street said merger and integration costs were $37 million, or 7 cents a share, in the first quarter. It also took a one-time, pretax charge of about $38 million, or 8 cents a share, related to Massachusetts tax legislation.
David A. Spina, chairman and chief executive officer, called the results disappointing and blamed ``the constraint imposed by a challenging interest rate environment.″
He added: ``Given the continuing uncertainty in global financial markets, we are taking significant steps to control operating expense growth for the rest of this year.″
Revenue for the quarter was $1.02 billion, up from $981 million a year earlier.
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