Banking Blues Give Way to Upbeat Tune: Fourth-Quarter Earnings Show Most Big Banks Reporting Higher, If Not Record, Profits - Thanks Largely to Sharp Drop in Interest Rates
Garsson, Robert M., American Banker
For two years and more, the big news in banking has been the succession of basket cases and disasters: Penn Square Bank, Seattle First, Continental Illinois, the Butcher banks, Crocker, energy lending, foreign debt, problems with capital adequacy, and so on.
Now, as fourth-quarter earnings come tumbling in, the industry finally has something to cheer about. Almost everybody is reporting higher, and often record, profits, primarily the result of sharply declining interest rates during the final three months of 1984.
And even more important, the banks may finally have put some of their most nerve-wracking problems behind them. Hefty reserves have been stocked away, capital has been fattened, and the largest of the Third World debtors have come to terms both with their banks and with international lending agencies, such as the International Monetary Fund.
"The banks are off to a great year," exclaimed Lawrence W. Cohn, first vice president and bank stock analyst with Dean Witter Reynolds Inc. Not since the final three months of 1982 have the earning reports looked as good, he said.
"We had been projecting a 12% to 13% earnings gain in 1985, and I feel a lot more comfortable about that than I did eight weeks ago," added James J. McDermott, director of research at Keefe, Bruyette & Woods Inc., an investment banking firm.
Mr. McDermott said the earnings statements released so far show that the industry's well-publicized problems "are related to segments of the industry." Caution flags should still be raised for banks with exposure in energy and agriculture, he said, but "the problems are not characteristic of the industry as a whole. …