Magazine article American Banker

A Solid 2Q Report Likely, UnionBanCal Is Upgraded

Magazine article American Banker

A Solid 2Q Report Likely, UnionBanCal Is Upgraded

Article excerpt

A Keefe, Bruyette & Woods Inc. analyst upgraded shares of UnionBanCal Corp. of San Francisco, saying he thinks it will report a second-quarter improvement in earnings from lending and investments.

Though Wall Street is fretting that the flattening yield curve has crimped banks' net interest income, UnionBanCal's has probably widened, analyst Manuel Ramirez wrote.

In a report issued Friday he raised the company's stock to "outperform," from "market perform," and raised his 2005 earnings forecast 6%, to $4.93, and his 2006 estimate 4%, to $5.25.

"All the pieces are falling into place for accelerated upward asset repricing," he wrote.

UnionBanCal, which is owned primarily by Mitsubishi Tokyo Financial Group Inc., will benefit through yearend from its hedging strategy, improving yields in its securities portfolio and in its loan portfolio, and minimal deposit repricing, Mr. Ramirez wrote.

The company's stock rose 1.7% in early trading Friday and closed up 1.6%.

Second-quarter earnings reports are due in coming weeks. Net interest margin performance is shaping up as a key factor that will separate winners from losers, analysts say.

Edward R. Najarian of Merrill Lynch & Co. issued a cautious note Friday on the prospects for second-quarter results. Though many large regionals will meet earnings estimates thanks to good credit quality, strong mortgage revenue, and securities gains, their net interest margins are likely to shrink, he wrote.

"We look for net interest margins to compress more than many investors may expect."

Asset-sensitive balance sheets have made several regional banks in the West -- including Zions Bancorp. …

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