Bank Stocks Lead on 'Government Restart Day'

NEW YORK ( TheStreet) -- Fifth Third Bancorp ( FITB) of Cincinnati was the winner among the largest U.S. banks on Thursday, with shares rising over 3% to close at $18.96.

The company early Thursday reported third-quarter earnings available to common shareholders of $421 million, or 47 cents a share, compared to $582 million, or 65 cents a share, in the second quarter, and $354 million, or 38 cents a share, in the third quarter of 2012.

As usual, Fifth Third's numbers included extraordinary items, with the third-quarter results boosted by an $85 million benefit on the sales of shares of Vantiv ( VNTV), which came to $55 million after tax, or 6 cents a share.

As expected, Fifth Third reported a sharp drop in mortgage banking net revenue to $121 million in the third quarter, from $233 million the previous quarter and $200 million a year earlier.

A partial offset to the revenue drop was a decline in credit expenses. The bank's third-quarter provision for loan and lease losses was $51 million, declining from $64 million the previous quarter and $65 million a year earlier.

Jefferies analyst Ken Usdin in a note to clients said Fifth-Third's operating earnings for the third quarter appeared "closer to $0.43, excluding one-timers," which he called a "solid beat" of the consensus EPS estimate of 42 cents, among analysts polled by Thomson Reuters.

Usdin wrote that Fifth Third's "expenses look good," since core expenses were down $55 million sequentially, excluding a $30 million litigation charge. The analyst rates Fifth Third a "buy," with a price target of $21.00.

Please see TheStreet's earnings coverage for more on Fifth Third's results.

Broad Market Strong Following Washington Drama

The broad indices ended mixed, with the Dow Jones Industrial Average dragged slightly in the red after shares of IBM fell over 6% to close at $174.34, after the company was downgraded by Goldman Sachs analyst Bill Shope to a "neutral" from a "buy" rating. Shope wrote in a note that "the company appears to be going through a challenging period that may limit operational earnings upside and produce more quarterly volatility than investors have been accustomed to."

The S&P 500 ( SPX.X) ended with a gain of 0.7% and the NASDAQ Composite was up 0.6%, after the federal government resumed full operations on Thursday. The stock market had closed with strong gains on Wednesday, after Senate Majority Leader Harry Reid (D., Nev.) announced a compromise agreement with Senate Minority Leader Mitch McConnell (R., Ken.) to fully fund government operations and raise the federal debt limit. The Senate and the House of Representatives quickly passed the legislation Wednesday night.

President Obama quickly signed the legislation and said at the White House Wednesday night that "We can begin to lift this cloud of uncertainty and unease from our businesses and from the American people."

Earlier Wednesday night, Obama said "with the shutdown behind us and budget committees forming, we now have an opportunity to focus on a sensible budget that is responsible, that is fair, and that helps hardworking people all across this country."

"One of the things that I said throughout this process is we've got to get out of the habit of governing by crisis," the president said. "And my hope and expectation is everybody has learned that there is no reason why we can't work on the issues at hand, why we can't disagree between the parties while still being agreeable, and make sure that we're not inflicting harm on the American people when we do have disagreements."

The Department of Labor on Thursday said initial unemployment claims for the week ended Oct. 12 totaled 358,000, falling 15,000 from the previous week's 373,000. The four-week moving average for initial jobless claims was 336,500, increasing 11,750 from the previous week's revised average of 324.750.

The KBW Bank Index ( I:BKX) on Thursday rose 0.9% to close at 65.28, with all but three of the 24 index components ending with gains.

More Bank Earnings

Third-quarter earnings for large banks, as expected, show a considerable decline in mortgage banking income, along with considerable declines in trading revenue for the largest players. On a brighter note, several regional lenders with footprints in the Midwest reported solid loan growth, including Huntington Bancshares ( HBAN), U.S. Bancorp ( USB) and KeyCorp ( KEY).

All three saw a solid market reaction Thursday, with shares of Huntington rising over 3% to $8.86, while USB was up 1.4% to $37.75 and KeyCorp rose over 3% to close at $12.54.

Goldman Sachs on Thursday announced third-quarter earnings of $1.52 billion, or $2.88 a share, which came in ahead of the consensus EPS estimate of $2.47, according to Bloomberg. But the bank showed a 44% year-over-year decline in fixed-income trading, to $1.25 billion.

Goldman's shares fell 2.4% to close at $158.25.

Please see TheStreet's earnings coverage for more on Goldman's revenue slide and bottom-line beat.

Shares of Goldman Sachs have returned 25% this year, following a 43% return during 2012. The shares trade for 1.1 times their reported Sept. 30 tangible book value of $143.86, and for 10.3 times the consensus 2014 EPS estimate of $15.39.

GS Chart GS data by YCharts

Interested in more on Goldman Sachs? See TheStreet Ratings' report card for this stock.


-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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