Newspaper article The Christian Science Monitor

Better Profits Buoy Banks as Competitors Pour on the Pressure

Newspaper article The Christian Science Monitor

Better Profits Buoy Banks as Competitors Pour on the Pressure

Article excerpt

BANKERS are giving the "thumbs up" sign these days, as the industry anticipates strong second-quarter earnings. The reports will be coming out in the weeks ahead.

Thanks to a "spread" that works in favor of the industry - enabling banks to earn a greater return on their own investments than they pay out to depositors in the form of interest - as well as declining bad debt losses, banking officials are heading off to summer vacations with a slightly lighter step than in the past. "In the short term, everything is looking sort of rosy" for the United States banking industry, says Warren Heller, research director for Veribanc Inc., a research firm in Wakefield, Mass.

The upbeat mood has not been lost on the stock market. Although bank stocks took some sharp jolts in April and May, reflecting concerns about inflation, Wall Street has shined on selected bank stocks this year. For the first six months of 1993, for example, the Salomon Brothers 50-bank stock index has risen almost 8 percent, compared with a rise of under 4 percent for the Standard & Poor's 500 index. For the four weeks ending June 28, the Salomon Brothers bank-stock index advanced 4.5 percent, more than three times the 1.3 percent gain of the S&P 500.

Bank stocks' solid performance reflects the continued recovery of the banking industry, with the number of "problem banks" steadily declining. At the end of March, Veribanc listed 77 problem banks, down from 150 at the end of March 1992. At the end of March 1991, Veribanc had counted 249 problem banks. The Federal Deposit Insurance Corporation (FDIC), providing federal insurance protection for deposits, listed 743 problem banks in March 1993, which had assets of $428 billion. A year earlier, the FDIC had listed 1,051 problem banks, with assets of $607 billion.

Despite the decline in problem banks, the industry is facing other challenges. Enormous competition from aggressive nonbank financial institutions, such as American Express and Sears, Roebuck & Co. …

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