Magazine article American Banker

Second-Quarter Gains Seen for Major Thrifts

Magazine article American Banker

Second-Quarter Gains Seen for Major Thrifts

Article excerpt

NEW YORK -- Second-quarter earnings at the nation's largest thrift institutions are expected to be higher, as lower interest rates helped the industry improve on generally strong first-quarter results.

"I'm expecting good increases both year over year and quarter over quarter," said Jerome Baron, an analyst with First Boston Corp. He noted that the improvement will come from several areas of business. "They're hitting on all eight cylinders," he said.

"They're going to be good, real good," said Robert G. Hottensen Jr., an analyst with Goldman Sachs. He said the key element has been widening interest rate spreads.

"The cost of funds [for the thrift institutions he follows] declined from 10.02% in January and 10.23% in December to 9.45% at the end of May," Mr. Hottensen said. "One or two companies are below 99%."

With the yields on earning assets rising, the net interest margin has jumped from 1.65% in December to 2.25% in May, a 60 basis-point rise, he said.

The thrift indsutry is liability-sensitive, he said, so it benefits from a decline in interest rates. And interest rates have been dropping steadily over the past three months. For example, the rate on six-month Treasury bills has fallen nearly 200 basis points since March to around 7%.

Analysts said the industry also will profit from securities transactions and from increased loan volume. "First-quarter lending volume was very slim," Mr. Baron said. He said thrifts should post increased fee income in the second quarter.

Recent loan volume figures released by the Federal Home Loan Bank Board showed lending activity increasing in the second quarter. …

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