Northern Trust, State Street, and WaMu Start The Bank Earnings March (STT, NTRS, WM)

This week, we’ll have an earnings onslaught from major US financial institutions for Q1 2008 quarterly results.  What investors need to grasp from these financial giants is not whether or not the companies beat estimates nor that they guide higher.  Our favorite conglomerate just dashed hopes of whether or not we are still looking for growth.  It is too soon to expect or demand an "ALL CLEAR" signal from financials at this stage.  What the investment community can stomach is bad results, lower expectations, and financial write-downs and loss provisions out of financial institutions.  As long as the results and forecasts are not signaling "at dire risk of implosion" then you will see more sighs of relief.

Tuesday we’ll get to see earnings out of Northern Trust Corp. (NASDAQ: NTRS). The estimates for the financial holding company from First Call are $0.96 EPS on $1.00 billion in revenues.  Next quarter estimates are $1.03 EPS on $1.02 billion in revenues. Estimates for fiscal Dec-2008 are $4.00 EPS on $4.00 billion in revenues.

Analysts have an average price target north of $76.00, still well above the $67.22 close on Friday.  Northern Trust Corp.’s 52-week trading range is $58.73 to $83.17.  Northern trust is more of a fiduciary bank rather than underwriting and trading firm, although they have already shown they aren’t immune from asset write-downs and other unforeseen charges.  Wall Street does not expect any horrible major implosion news here.

Also on Tuesday, we’ll get to see earnings out of State Street Corp. (NYSE: STT). The estimates for the investment servicing and managing product company from First Call are $1.30 EPS on $2.41 billion in revenues.  Next quarter estimates are $1.32 EPS on $2.48 billion in revenues. Estimates for fiscal Dec-2008 are $5.14 EPS on $9.72 billion in revenues.

Analysts have an average price target north of $90.00, above its $79.33 close on Friday.  State Street Corp.’s 52-week trading range is $59.13 to $86.55.  State Street is also more fiduciary in nature, but it has more products than Northern Trust.  But Wall Street does not expect any horrible major implosion news here.

Tuesday we’ll also get to see earnings out of Washington Mutual Inc. (NYSE: WM), and the woes here are now widely known. The estimates for the consumer and small business bank from First Call are -$0.98 EPS on $3.4 billion in revenues.  Next quarter estimates are -$0.56 EPS on $3.47 billion in revenues. Estimates for fiscal Dec-2008 are -$1.74 EPS on $14.39 billion in revenues.

Analysts have an average WaMu price target north of $14.00, well above its $10.95 close on Friday and well above that TPG-led private equity bailout at $8.75 per share.  You have to already assume that the numbers as of the end of the month looked uglier than 40 miles of bad road, with writedowns and losses looking the strapped Monopoly player that just landed on Boardwalk when hotels are on it.  This one is a given ugly gone fugly.  About all we can hope for is one more piece of the pie in establishing a wider grasp of the counterparty risk among the 40 largest financial institutions.  Washington Mutual’s 52-week trading range is $8.72 to $44.66, and the entire upper half of that 52-week range is now just as irrelevant as gold to a dead man.

Jon C. Ogg
April 13, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at [email protected] and he does not own securities in the companies he covers.