Magazine article American Banker

Bank Stocks in a Selloff despite Strong Profit Outlook: Many Analysts Expect Rise to Resume Soon

Magazine article American Banker

Bank Stocks in a Selloff despite Strong Profit Outlook: Many Analysts Expect Rise to Resume Soon

Article excerpt

Bank stocks are in the midst of a selloff, even as major companies prepare to release a stream of what are expected to be stellar earnings reports.

In the six trading days ending Friday. the American Banker index fell about 2.6%, as compared to a drop of about 1.5% in the Dow Jones industrial average.

The slide reverses the pattern in December, when bank stocks outperformed the Dow and other major stock indexes.

Shares of some major banks have lost more than 5% of their value in recent days.

Loss Leaders

Among the loss leaders were BankAmerica 's shares, which tumbled $2.50, to $44. Shares of Citicorp fell $1, to $21.25. Bank of Boston Corp.'s shares tumbled $1.25, to $24.25. And Crestar Financial Corp.'s shares fell $3, to $36.

Analysts likened last week's selloff to the summertime correction that followed last year's strong second-quarter earnings reports. Many on Wall Street had thought the bank stock rally was over then.

Last week, investors dumped shares in response to a slew of investment downgrades from securities firms and a belief that bank stocks, particularly over-the-counter shares, have enjoyed their last run-up in price.

The wave of downgradings began the last week in December and gained momentum last Tuesday, when NatWest Securities cut the investment ratings on six banks, reflecting its dimmer view of the market. The downgraded banks were First Interstate Bancorp, Continental , Bank of Boston Corp., J.P. Morgan & Co., Shawmut National Corp., and First Union Corp.

Diminished Prospects

Then Thursday, Keefe, Bruyette & Woods Inc. and Kemper Securities Corp. slashed their earnings estimates for BankAmerica Corp., citing diminished prospects for revenue growth. Shares of the San Francisco bank dropped $2.50, or 5.4%, to $44 that day. …

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