Magazine article American Banker

Commerce, South Financial Deposit Strength Questioned

Magazine article American Banker

Commerce, South Financial Deposit Strength Questioned

Article excerpt

Analysts say they are worried that margin pressure will hurt banking companies' 2005 earnings.

Andrew B. Collins of Piper Jaffray Co. lowered his rating on Commerce Bancorp Inc. of Cherry Hill, N.J., to "market perform" from "outperform" on Monday and cut his 12-month price target on its shares by $1, to $34.

Mr. Collins' research note made no mention of the ongoing corruption trial in Philadelphia that involves two Commerce executives and has some analysts looking askance at shares of the $30.5 billion-asset company.

Rather, he wrote, margin pressure and Commerce's increasing sensitivity to higher deposit-funding costs are worrisome, especially if the Federal Reserve Board keeps raising rates.

Also on Monday, John Kline of Sandler O'Neill & Partners LP cut 5 cents a share from his 2005 and 2006 earnings estimates for South Financial Group Inc. of Greenville, S.C.

Mr. Kline now expects the company to earn $2.25 a share in 2005 and $2.70 in 2006. He also lowered his 12-month price target by $1, to $35.

In an interview Monday, Mr. Kline said that his initial margin assumptions were overaggressive for this year and that he doubts South Financial's deposit growth will match its high loan growth.

In his research note, Mr. Kline raised his projection on South Financial's 2005 loan growth to 18%, from an earlier projection of 15%. He pointed to continued improvement in the U.S. economy, South Financial's continued expansion in Florida, and his expectation that the company will use a slightly higher tax rate than it used for 2004. …

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