Institutions Stocking Up on Bank Stocks

By Layne, Richard | American Banker, November 7, 1991 | Go to article overview
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Institutions Stocking Up on Bank Stocks

Layne, Richard, American Banker

Institutions Stocking Up on Bank Stocks

Flush with a renewed confidence in the banking industry, the biggest money managers have been loading -- even overloading -- their clients' portfolios with bank stocks.

After dumping stocks steadily during most of 1990, when banks reported record losses, the institutions began reversing course in January.

The pace has accelerated steadily since then. By midyear, some portfolios contained more bank stocks than at any time since 1986.

Plenty of Optimism

"We are overweighted with bank stocks," said Bruce Herring, manager of a $50 million financial services portfolio at Fidelity Investments. "That speaks for itself about our optimistic outlook for the industry."

With $2.5 billion invested in bank stocks, Fidelity commands attention. The giant Boston-based mutual fund group leads the list of institutional investors with the biggest holdings of bank stocks. The institutions include a blue-chip collection of public and private pension funds, mutual funds, bank trust departments, assorted benefit funds, and other pools of cash. By reacting to the rally in bank stocks, these big institutions kept it rolling.

The group poured more than $8 billion into bank stocks during the first half of 1991, for a net addition to portfolios of $2.5 billion, according to CDA Investment Technologies, Rockville, Md.

A Breather for Management

The result: bank stock prices have zoomed. Many banks are now within hailing distance of 52-week market highs, giving CEOs a breather from a siege of anxious shareholders.

The 50 biggest institutions poured more than $8 billion into bank stocks through June, for a net $2.5 billion addition to their bank stock portfolios.

Several related factors are luring investors back to the bank sector.

Most money managers now are convinced that banks have stanched the worst bleeding from real estate deals and highly leveraged transactions.

"We are past the scary brink, the worry about credit," said Robert Bissell, senior vice president at Wells Fargo & Co., San Francisco, which is one of the biggest investors through a variety of funds it controls.

Hoping for Improvements

Consolidation also has captured investors' imagination with promises of stronger balance sheets, cost reduction, and economies of scale.

These investors aren't about to stop the flow of funds any time soon. Even with the rally, investors can point to dozens of bank stocks that are undervalued. More important, the biggest institutional investors agree: through consolidation and expense control, the industry has turned the corner, with more-profitable times ahead.

Bank executives no doubt appreciate the vote of confidence -- unhappy institutional investors bailed out of their stocks last year, sending prices into a free-fall.

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