NEW YORK -(Dow Jones)- There might finally be good news for some of America's biggest banks.
Top executives have been quietly - and, sometimes boldly - signaling that some of their businesses have gotten off to a good start in 2009. A resurgence of corporate bond deals and trading might be the reason behind it.
Corporate debt issuance has staged a recovery in recent months. And banks are charging higher fees for trading and underwriting after the credit crisis forced many competitors out of business.
These are encouraging, if modest, developments for financial firms still haunted by talk of nationalization and fears of more write-downs.
"We just had the two most active bond months we ever had," said JPMorgan Chase & Co. (JPM) Chairman and Chief Executive
Jamie Dimon
. The company was profitable in January and February, he later said.
Just a day earlier, Citigroup Inc. (C) CEO Vikram Pandit told employees the bank is having its "best quarter-to-date performance since the third quarter of 2007."
And, Bank of America Corp.'s (BAC)
Kenneth Lewis
told employees in a memo last month that January results were "encouraging" as fixed-income markets recovered.
Thawing in some credit markets at the start of the year has led to a flurry of corporate bonds underwritten by major banks.
For instance, Boeing Co. on Tuesday launched a $1.85 billion debt sale that will be completed in three stages. Proceeds will be used for general corporate purposes, and book managers include JPMorgan andBanc of America (BAC) Securities.
That adds to $1.2 trillion worth of global debt volume so far this year, compared to $974.9 billion in the same period in 2008, according to financial data provider Dealogic. Those issues generated $3.2 billion in underwriting fees this year, with the top ten banks splitting $1.7 billion of that amount.
Banks charge fees to help companies raise and sell debt. So far this year, those fees are 7% higher than the same period last year, though significantly lower than the start of 2007, according to Dealogic.
Recognition that fixed-income business will boost profit during the first quarter was encouraging to both analysts and investors this week. In fact, Pandit's remarks spurred a steep one-day rally for financial stocks on Tuesday - and took some by surprise.
"While we expected the firm to be profitable excluding provisions and markdowns on troubled assets, we did not anticipate a bottom-line profit," said Sandler O'Neill & Partners analyst
Jeffery Harte
said. "For the first time in a long time our outlook may have an upward bias."
However, analysts warn corporate debt issuance will wane as the year goes on.
"You've had a relatively big rally from the middle of December through the middle of February, and that's generated a lot of the new issues," said Joe Balestrino, a portfolio manager at Federated Investors. "They want to load the gun so they don't have to come back later."
Some of the biggest players on Wall Street have either scaled back their business, or in the case of Lehman Brothers, simply folded. Less competition allows surviving banks to charge higher fees for everything from currency trading to bond issuance.
Several analysts who have had recent meetings with Goldman Sachs Group Inc. ( GS) Chief Financial Officer
David Viniar
confirmed that the new pricing power will help profits.
That by no means indicates the banking heavyweights have surmounted all their problems and will wrap up 2009 profitable. If the economy continues to ratchet lower, the value of loans and securities could lose significant value.
"There's still a lot to worry about," said Stuart Plesser, a bank equities analyst with Standard & Poor's.
-By
Joe Bel Bruno
, Dow Jones Newswires; 201-938-4047; joe.belbruno@ dowjones.com
