Early Banking 4Q Reports Give Cause For Lending Optimism
January 14 2011 - 4:23PM
Dow Jones News
Three banks of very different size kicked off the fourth-quarter
earnings season in earnest Friday, with all reporting measurable
demand for new business loans.
If other banks report higher loan demand, it could indicate a
trend that may breathe new life into banks. Loan growth could give
bankers an opportunity to grow revenue, following a year when
earnings rose due to lower costs for bad loans.
Analysts have been worried that the slow economic recovery and
new regulation and laws would make 2011 a tough year. But
executives at giant J.P. Morgan Chase & Co. (JPM), midsized
M&T Bank Corp. (MTB), and Webster Financial Corp. (WBS), which
reported fourth-quarter earnings Friday, sounded optimistic that a
sustained recovery of the lending business would lift earnings this
year.
Perhaps those three banks signal the inflection point in
lending, said Ken Usdin, an analyst with Jefferies & Co.
J.P. Morgan Chase reported a year-over-year increase of almost
50% in fourth-quarter profit to $4.8 billion, and a 13% rise in
revenue to $26.1 billion. The bank's corporate lending business,
which caters mostly to the financial needs of mid-sized businesses,
generated record results.
From the third quarter to the fourth, loans to mid-sized
companies rose 4% to $36.6 billion and commercial term loans
increased 2% to $38.6 billion.
Shares of the bank rose 1.3% in afternoon trading.
"What we see is a pretty broad-based strength across corporate,
middle-market, even small businesses," Chairman and Chief Executive
James Dimon told reporters during a conference call. "Capital
markets are wide open, financial conditions have loosened, the rest
of the world is growing."
"We are hopeful this is going to be a good year," Dimon
said.
M&T Chief Financial Officer Rene Jones was similarly
hopeful. During an interview he said "I guess [the economic
recovery] is not fast enough for some, but what I like is that it
is very steady. You don't see a lot of things, if anything, going
into the wrong direction. I like the fact that consumers continue"
to pay down debt and save.
M&T of Buffalo, N.Y., posted earnings growth of almost 50%
to $204 million while revenue rose 14% to $776 million. Although
loan balances are down from a year earlier, commercial loans rose
by $600 million, or 5%, from the third quarter to $13.4
billion.
"The kind of recovery we see is more around manufacturing,
healthcare, perhaps a little bit retail," Jones said. Those trends
could help M&T, which is in markets with much
manufacturing.
M&T also saw increasing demand in so-called "floorplan
lending" that is financing auto dealers' inventory. Shares of
M&T were down 0.2% in afternoon trading.
Webster Chief Executive James Smith said he sees "significant
growth opportunities" in lending to small and mid-sized businesses.
The Waterbury, Conn., bank reported a $32.6 million profit,
compared to a $13.7 million loss a year earlier. Revenue rose 44%,
to $168 million. Its shares added 9.6% in afternoon trading.
Still, there were words of caution. J.P. Morgan's Chief
Financial Officer Douglas Braunstein told analysts during a
conference call the utilization of commercial lines of credit
remains flat and below 35% of their limit.
M&T's Jones said, "the strong commercial loan growth we
experienced in December was not matched by similar inflows into our
current pipeline for new business."
Jefferies' Usdin said the stronger banks reported first this
earnings season; later banks may not show as much loan growth. But
the results bode well for PNC Financial Services Group Inc. (PNC)
and for other banks in manufacturing markets, like Fifth Third
Bancorp (FITB) and Huntington Bancshares Inc. (HBAN), Usdin said.
All three are scheduled to report results this coming Thursday.
Todd Hagerman, an analyst with Collins Stewart, wondered
"whether the increasing demand will really manifest itself into
balance-sheet growth."
He added that "better-than-expected mortgage banking and
asset-management revenues are not likely sustainable in 2011 as the
recovery remains tepid."
-By Matthias Rieker, Dow Jones Newswires; 212-416-2471;
matthias.rieker@dowjones.com
Webster Financial (NYSE:WBS)
Historical Stock Chart
From Mar 2024 to Apr 2024
Webster Financial (NYSE:WBS)
Historical Stock Chart
From Apr 2023 to Apr 2024