Magazine article American Banker

Will Banks Plunge Anew as Earnings Are Reported?

Magazine article American Banker

Will Banks Plunge Anew as Earnings Are Reported?

Article excerpt

For the past five quarters, bank stocks have rallied ahead of earnings, only to be sold off after results were reported. Will the pattern repeat itself?

George Salem, banking analyst at Prudential Securities, doesn't think so.

"People now want to buy cyclically sensitive equities in the industrial sector of the market," he said. "A new era is upon us, and with the economy picking up steam, it's likely that interest rates will rise and not fall."

Bank stocks do best, Mr. Salem added, in a weak economy, when interest rates are falling, "and that does not seem to be what's ahead."

Industrial Focus

Investors are focusing now on industrial companies with earnings that are highly leveraged to the economy, he said.

Just as he doesn't expect bank stocks to rally ahead of the release of fourth-quarter 1993 results, neither does he expect a selloff once results are reported.

Brent B. Erensel, senior banking analyst at UBS Securities, said the torrid earnings growth seen earlier in 1993 is beginning to slow. "We're looking for a 38% quarterly gain at money-center banks, down from a 47% gain in the third quarter," he said.

"Regionals should rise 37%, down from 42% in the third quarter," said Michael L. Mayo, regional bank analyst at the same firm.

Dividend Boosts in Store

Mr. Erensel added, though, that banking industry fundamentals remain strong. "Asset quality is excellent," he said. "The trading environment is favorable, and strength of capital is enabling a flurry of dividend boosts to occur. …

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