Banks Report Upbeat Profits in 3rd Quarter
Wells Fargo & Co., Bank of America Corp., Washington Mutual Inc. and Citigroup Inc., fierce rivals for the huge California banking market, reported robust third-quarter earnings Tuesday thanks largely to record mortgage and credit-card lending, sending their stocks and those of competitors up sharply.
Profit warnings from J.P. Morgan Chase & Co., Bank of New York Co., Comerica Inc. and others had depressed bank stocks this month, but investors did an about-face Tuesday, lifting stocks of all 24 banks and thrifts in the Philadelphia KBW index higher. Shares rose 1.8% at Washington Mutual, 5.4% at Wells, 8.3% at Bank of America and 13% at Citigroup, a component of the Dow Jones industrial average. Citigroup’s increase helped power the Dow past 8,000 for the first time in four weeks.
“The market had absolutely assumed the worst,” said Richard Kovacevich, chairman of San Francisco-based Wells Fargo. “Today’s announcements said things aren’t fabulous, but it’s a lot better than the market thought.”
Consumers’ willingness to borrow despite the tough economy overcame rising delinquencies and weak commercial lending. And the flow of money out of stocks and into low- and no-interest bank accounts provided cheap funds for such banks as BofA and Wells Fargo and such thrifts as Washington Mutual, which have the most California branches.
“These things work together in ways to allow pretty phenomenal results even in difficult economies,” Kovacevich said.
* Wells Fargo, the fifth-largest U.S. bank, reported third-quarter profit of $1.44 billion, or 84 cents a share, up 10% from $1.31 billion, or 75 cents a share, a year earlier, when adjusted for an accounting change. The booming market for mortgages and home-equity lines lifted consumer lending 24%.
Wells said it picked up some new business customers, but total demand for commercial loans remained flat. Wells’ stock gained $2.55 to $49.78.
* Earnings at Charlotte, N.C.-based Bank of America, the nation’s biggest retail bank, jumped to $2.24 billion, or $1.45 a share, from $841 million, or 51 cents a share, a year earlier, when its earnings reflected $1.25 billion in costs related to its exit from the auto leasing and subprime consumer lending businesses.
BofA’s profit from global corporate and investment banking fell 18%, but Chief Financial Officer James Hance said the bank sees glimmers of a pickup in commercial demand. The bank’s stock jumped $5.04 to $65.75.
* Seattle-based Washington Mutual said profit rose to $976 million, or $1.01 a share, up 7% on a per-share basis from year-earlier earnings of $832 million, or 94 cents a share. Loan volume rose 34%. The thrift’s shares climbed 57 cents to $32.70.
* New York’s Citigroup, the nation’s largest financial conglomerate, reported earnings rose 23% to $3.92 billion, or 76 cents a share, from $3.18 billion, or 61 cents, a year earlier. Profit from credit cards, consumer loans and branch-banking rose 13% to a record $2.2 billion, overcoming a drop in investment banking and growing loan losses.
Results beat analysts’ expectations of 73 cents a share. That was welcome news at Citigroup, which recently has suffered from accusations that its securities analysts had conflicts of interest, investigations of ties to corporate accounting scandals, and community-group objections to its planned takeover of California Federal Bank parent Golden State Bancorp, which would increase its California offices from 77 to nearly 500. Citigroup’s stock gained $3.83 to $34.14.
Today’s earnings reports will include Downey Financial Corp. in Newport Beach, UnionBanCal Corp. in San Francisco, City National Corp. in Beverly Hills and Comerica Inc. in Detroit.
Reuters and Bloomberg News were used in compiling this report.
