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.
Citigroup Inc. (C) Chairman and Chief Executive Vikram Pandit gave one of the broadest assessments of improvement in bank performance. "I am most encouraged with the strength of our business so far in 2009," Pandit said in a memo to employees on Monday. "In fact, we are profitable through the first two months of 2009 and are having our best quarter-to-date performance since the third quarter of 2007."
His comments followed similar statements made by other top CEOs. 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. JPMorgan Chase & Co.'s (JPM)
Jamie Dimon
touted the firm's trading results at a Feb. 23 meeting with investors.
Pandit's remarks this week spurred steep gains for financial company stocks. Sandler O'Neill & Partners analyst
Jeffery Harte
said, "While we expected the firm to be profitable excluding provisions and markdowns on troubled assets, we did not anticipate a bottom-line profit. For the first time in a long time our outlook may have an upward bias."
Though the CEOs stopped short of identifying specific areas driving profits, analysts believe most of it is coming from the debt markets. 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 and Banc of America 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.
Analysts warn that 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
