Huntington’s 2nd-quarter profits take hit
The coronavirus pandemic has taken a big bite out of Huntington Bancshares’ bottom line.
Some of the bank’s employees will lose their job as a result.
The bank reported Thursday that its profit slipped 59% during the Apriljune quarter from a year ago, falling to $150 million, or 13 cents per share.
Later Thursday, the bank announced it is cutting about 1% of its workforce, about 150 jobs total, throughout its Midwest footprint as a way to reduce costs because of the pandemic. In addition, the bank said some open jobs won’t be filled.
“While our business continues to perform well, the pandemic has caused historically low interest rates and a recession, which has impacted our revenue. In response, Huntington has taken a variety of measures to manage these challenges, including reducing expenses by adjusting staffing levels,” the bank said in a statement.
The 13 cents per share profit was about twice what analysts were expecting, and Huntington shares jumped about 5% in trading Thursday afternoon. Shares, though, remain well off their high of the past year of $15.63.
Revenue for the quarter was $1.2 billion, about flat versus the same period in 2019.
Huntington’s profit tumbled in reaction to the economic downturn caused by the pandemic, with the bank bolstering its reserves to cover potential loan losses. It was a quarter marked by dramatic changes and uncertainty for customers, said Steve Steinour, the bank’s chairman, president and CEO.
The pandemic sent unemployment soaring and stock markets tumbling early on.
“We wanted to try and keep the communication going and help where we can,” he said. The bank has been waiving fees and deferring loan payments for customers and business clients.
With Firstenergy Corp. and its former subsidiaries implicated in a public corruption scandal, market analysts are sharing varying degrees of concern for the economic toll two of Akron’s biggest employers could pay.
Racketeering charges filed Tuesday against lobbyists and lawmakers, who allegedly took donations in exchange for a $1 billion energy bailout bill, all but named Firstenergy and its former power-generation subsidiary Firstenergy Solutions as the source of the cash.
Firstenergy Solutions is now Energy Harbor after emerging in February from Chapter 11 bankruptcy. Now two companies with headquarters in Akron and thousands of employees in multiple states, Firstenergy Corp. and Energy Harbor say they’re reviewing the criminal complaint and cooperating with federal investigators.
Neither will talk about the potential impact on business or investor confidence.
Stock prices for both companies are off by a third since the scandal broke. Subpoenas announced Tuesday evening for Firstenergy followed the morning arrests of Ohio Speaker of the House Larry Householder, former GOP Chairman Matt Borges and three top statehouse lobbyists. The men and Generation Now, a dark money group that investigators believe Householder used to conceal Firstenergy donations, are being charged with racketeering.
Political backlash could be especially costly for Energy Harbor, which is depending on the controversial state bailout signed into law last year. Two Republicans and several Democrats said Wednesday that they intend to claw back the subsidy.
The repeal of House Bill 6, which Gov. Mike Dewine said Wednesday he would not support, could rewind the clock for Energy Harbor to March 29, 2018, when — then operating as Firstenergy Solutions — the Davisbesse nuclear power plant was scheduled for decommission in May 2020 followed by the Perry Nuclear Power Plant in 2021. Struggling to compete with cheap natural gas, the plants each employ about 700 people.
Firstenergy Solutions filed Chapter 11 bankruptcy two days later, on March 31, 2018. That July, Firstenergy Solutions arranged but did not follow through with the sale of its retail and wholesale electricity business to Constellation, a subsidiary of Chicagobased energy giant Exelon.
By 2019, the financial outlook improved. A bankruptcy settlement was reached in October.
Firstenergy shareholder dividends increased 5.6% in 2019, the first increase since falling 35% in 2014, according to Charles Fishman, an equity analyst at market research firm Morningstar.
With monthly revenue of about $150 million, Energy Harbor values itself post-bankruptcy at $1.2 billion, according to a March financial report.
The company serves 900,000 customers with nuclear and coal-fired power plants in Ohio, Pennsylvania and West Virginia, and employs 2,600 workers — including 1,000 under collective bargaining agreements.
Analysts say solar, wind and other renewable sources could feasibly replace the electrical output of Energy Harbor’s two nuclear power plants, which currently provide the bulk of Ohio’s zero emission energy.
Among the nation’s largest investorowned utility companies, Firstenergy Corp. provides electricity to 6 million customers through 10 subsidiaries, including Ohio Edison, Cleveland Electric Illuminating and Toledo Edison in Ohio.
About 36 hours since news broke of the public scandal Tuesday morning, Energy Harbor stock fell 33.5%, from $35.35 to $27.09 at market’s close Wednesday. Firstenergy Corp. stock fell 35% over the two trading sessions, from $41.64 at the opening bell Tuesday to $27.09 by Wednesday’s end.
Firstenergy is scheduled to release its financial results for its April-june quarter Thursday afternoon. A conference call with analysts to discuss the financial results will be held Friday morning.
Analysts say the arrests have created uncertainty about Firstenergy and where the investigation about House Bill 6 is going.
“We are concerned about the potential implications for (Firstenergy), which we find impossible to predict with any degree of certainty at this juncture,” Keybanc analyst Sophie Karp said in a research note released Tuesday.
More charges could be coming. Karp said phone calls and contributions detailed in the criminal complaint suggest “some degree of collusion between Company A (Firstenergy) and ‘the Enterprise’ of (House Speaker Larry Householder) and his associates.”
“We expect share volatility near term for Firstenergy Corp., but believe additional details will be needed on the specifics of the case to determine where the risks lie,” analyst Paige Meyer said.
Fishman with Morningstar said the investigation is problematic for
Firstenergy. But he said investors are overreacting.
“I’ve been doing this for a long time. What am I missing?” he said.
Firstenergy’s Ohio operations are 20% of all operating earnings, which cover operations all the way to Maryland. And Firstenergy’s Ohio utility rates are locked in until at least 2024, which provides some predictability.
“We also find it hard to believe that Firstenergy’s management was directly involved in any bribery scheme with respect to HB 6,” he said in a research note Tuesday. “Although Firstenergy CEO Chuck Jones had been very vocal in his support for the legislation, his support was based on his belief that the nuclear plants were important to Ohio, the communities in which they were located, and the plant employees. When passed, HB 6 had minimal benefit for Firstenergy or Jones.”
Still, the revelation could harm Firstenergy’s relationship with regulators and legislators in Ohio. Jones, the CEO and president, already has been talking about retiring.
“It will be messy. It does not look good for them,” said Fishman, who kept his $44 price target on Firstenergy shares.