Magazine article American Banker

Money-Center Bank Earnings Getting Tough to Guess

Magazine article American Banker

Money-Center Bank Earnings Getting Tough to Guess

Article excerpt

Estimating earnings of money-center banks gets tougher all the time, according to Norman Jaffe, the leading forecaster among Wall Street analysts for these companies.

"More and more, the earnings are market-driven" by these banks' deep involvement in global trading activities, said Mr. Jaffe, director of U.S. research and senior bank analyst at Fox-Pitt, Kelton Inc.

Mr. Jaffe was the best prognosticator of money-center results in the American Banker's survey of sell-side bank equity analysts, prepared by Zacks Investment Research.

Arriving at estimates - quarterly and yearly - involves a large amount of input from colleagues, clients and the banks themselves, the analyst noted last week in his New York office.

"Calculating the money-center earnings is difficult, and getting steadily more so, with trading income and nonrecurring items," Mr. Jaffe said.

Divining earnings in advance for J.P. Morgan & Co. and Bankers Trust New York Corp., the two U.S. banks that have moved farthest into the overall realm of trading, is especially challenging.

How much do the banks help? "They do offer guidance, but especially in the capital markets area they may not know for sure themselves how a quarter looks, and they don't want to offer misleading impressions," he said.

Typically, Mr. Jaffe touches base monthly with the 30 banks he covers, including the money-centers. He begins sharpening estimates in the middle of the last month of each quarter.

By then, the banks have two months of results for the period under their belts and hopefully a fair notion of how things are likely to end up.

In the meantime, Mr. Jaffe discusses the impact of industry trends with his fellow bank analysts at Fox-Pitt - Denis Laplante and Michael L. Granger.

And he works closely with clients, who include major shareholders in the banks he covers. "We interact with them a lot, to hear what they are hearing from the companies," he said. …

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