Future Profit?

This is a partial transcript from "Your World with Neil Cavuto," April 19, 2004, that was edited for clarity.

Watch "Your World w/Cavuto" weekdays at 4 p.m. and 1 a.m. ET.

NEIL CAVUTO, HOST: The nation’s fourth-largest bank, Wachovia (search), sees its first quarter profits climb 42 percent, handily beating estimates. The stock’s up 21 percent in just the last 12 months.

Is this as good as it gets for that particular stock? Let’s ask Ken Thompson. Ken is Wachovia’s chairman and CEO. He joins us from North Carolina.

Ken, good to have you. Thank you for coming.


CAVUTO: It’s interesting, because low interest rates have been sort of the wind at all of your financial guys’ back, and now they’re backing up. Are you worried?

THOMPSON: No, we’re not. Actually, we think rates going up is a sign of a healthy economy and that will be good for Wachovia’s earnings.

CAVUTO: Right, so in other words, the economy picks up, more than offsetting the higher interest rate costs.

THOMPSON: That’s exactly right. We’ve got four business lines at Wachovia. Three of them are market sensitive: brokerage asset management and corporate and investment banking. And all of those businesses will improve as rates go up with a stronger economy.

CAVUTO: Now, the market rule of thumb, and I know you don’t focus too much obsessively on your stock, but normally the rule of thumb is, with the first rate hike, within six months to a year later, all the major market averages are down anywhere from 4 to 5 percent. Are you prepared for that sort of thing, or will history be different this time?

THOMPSON: I think history is going to be different for financial stocks. I think the paradigm has changed and banks, in particular, are not as tied to interest rates as they were in the past. As I mentioned, we’ve got some market-sensitive businesses here, and I think we’re going do fine. In fact, I think we’re going to do very well, as rates start going up.

CAVUTO: Let me ask you real quick. I noticed retail banking, that was up 13 percent, your investment banking, up 62 percent, capital management profit up 90 percent. Even in a higher rate environment, what would those figures look like? The same?

THOMPSON: Yes, well, our general bank is - would be hurt by rates going up if it were a market performer. The truth is, our general bank is outperforming the market. We’re growing low-cost core deposits. We’ve got double-digit loan growth in the general bank. So we think that’s going to do fine. It grew earnings 13 percent. We think it can continue to go at that rate.

But our corporate and investment bank, our brokerage operation and our asset management business, which is in capital management, we think are all going to continue to have double-digit growth as markets improve and rates go up.

CAVUTO: All right. We’ll see what happens.

THOMPSON: So we’re very optimistic, Neil.

CAVUTO: All right. It sounds like that. Ken Thompson, Wachovia chairman and CEO.

Thank you, sir. Appreciate it.

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