Banks See Profits Climb on Investment Business
Citigroup Inc. and other large U.S. banks posted higher first-quarter profits on Monday as strength in investment banking and trading offset slowing growth in consumer banking. East West Bancorp, a large community bank based in Pasadena, said earnings rose 36%, beating Wall Street expectations.
Profit rose 4% at Citigroup, the largest U.S. bank. Wachovia Corp., the No. 4 bank, posted a 7% increase, its slowest growth rate in five years. SunTrust Banks Inc., the No. 7 bank, reported an 8% gain, its smallest increase in more than two years.
Citigroup and SunTrust topped Wall Street forecasts, while Wachovia matched estimates.
“Results so far are consistent with strength in capital markets,” said Mark Batty, an analyst at PNC Advisors in Philadelphia. “There is significant strength overseas, and volatility in interest rates and commodities is presenting attractive opportunities for trading.”
At the same time, “the consumer is a little overextended as interest rates rise and with refinancings slowing,” said Peter Kovalski, a portfolio manager at Alpine Woods Investments in Purchase, N.Y. “Corporate America will carry the weight going forward.”
Citigroup shares rose 30 cents to $48.35. Wachovia slipped 80 cents to $55.05 and SunTrust fell 21 cents to $73.60.
Shares of East West, which announced its earnings after the close of regular trading, declined 32 cents to $37.
Other banks reporting results this week include Wells Fargo & Co. and U.S. Bancorp today, JPMorgan Chase & Co. on Wednesday and Bank of America Corp. on Thursday.
Among banks reporting earnings Monday:
* East West earnings rose to $32.1 million, or 55 cents a share, from $23.5 million, or 44 cents a share, in the first quarter of 2005, on growth in loans and deposits and the completion of the acquisition of Standard Bank, a smaller rival.
Analysts had expected earnings of 53 cents a share for the quarter. The bank also reaffirmed its expectations of earning $2.25 to $2.29 a share for the full year. Wall Street is expecting $2.27.
Revenue rose from $64.4 million to $88.6 million, and loan delinquencies and losses declined.
East West’s chairman and chief executive, Dominic Ng, said the results were achieved despite increased competition and volatile interest rates. The narrowing gap between short-term borrowing costs and long-term interest rates has reduced profit on lending at many banks, but Ng said a 3% decline in East West’s lending margin was caused mainly by tough competition in the pricing of loans and deposits.
East West, whose core customer base is ethnic Chinese, moved its headquarters recently from San Marino to Pasadena. In March it completed its acquisition of Standard Bank, a Monterey Park-based competitor with $895 million in assets. The takeover, the latest in a series for East West, brought the bank’s total assets to $9.3 billion.
* Net income for New York-based Citigroup rose to $5.64 billion, or $1.12 a share, from $5.44 billion, or $1.04, a year earlier. Revenue rose 5% to $22.18 billion.
“I’m very, very pleased with our accomplishments and our financial performance,” Chief Executive Charles Prince said.
International profit rose 47% and revenue increased 19%, offsetting declines of 13% and 1%, respectively, in the United States.
* Net income for Charlotte, N.C.-based Wachovia rose to $1.73 billion, or $1.09 a share, from $1.62 billion, or $1.01, a year earlier. Revenue rose 9% to $7.06 billion, exceeding forecasts of $6.9 billion.
“We continue to see excellent sales production and robust pipelines ahead” despite a “pretty tough interest rate environment,” Chief Executive Ken Thompson said.
* Net income for Atlanta-based SunTrust rose to $531.5 million, or $1.46 a share, from $492.3 million, or $1.36, a year earlier. Analysts on average expected $1.43.
Revenue was up 9% to $2.05 billion, beating forecasts of $2.01 billion.
“Despite the challenging market environment that includes the continuation of a flat yield curve and choppy financial markets, we performed very well,” Chief Executive L. Phillip Humann said.
