Magazine article American Banker

With Dow Past 4,000 and Rate Fears Fading, Bank and Thrift Stocks Continue to Climb

Magazine article American Banker

With Dow Past 4,000 and Rate Fears Fading, Bank and Thrift Stocks Continue to Climb

Article excerpt

Bank stocks continued their resurgence Thursday as the Dow Jones industrial average tore through the 4,000-point level.

Money-center banks and thrifts paved the way, as the prospect of flattening or even declining interest rates fed the rally.

Continued merger speculation also helped fuel financial institution stocks in the wake of Tuesday's announced acquisition of Shawmut National Corp. by Fleet Financial Group.

J.P. Morgan & Co. rose $1.375, to $63; Citicorp, $1, to $44.75 -- 5% in the last two days -- and Chase Manhattan Corp., 62.5 cents, to $35.125. Also, SunTrust Banks Inc. was up $1.25, to $54.

Federal Reserve Chairman Alan Greenspan indicated in congressional testimony Wednesday and Thursday that the central bank's interest rate increases may be over, leading to a resurgence in financial issues.

"If the consensus develops that this, in fact, is the case, based on historical behavior, the bank group has the potential for an explosive rally, which we would estimate from 15% to 20%," said George Salem, an analyst at Gerard Klauer Mattison & Co.

Accordingly, Mr. Salem upgraded Chase, Chemical Banking Corp., NationsBank Corp., and BankAmerica Corp. to "buy" from "hold." In fact, the analyst said he had upgraded the entire bank group to "buy" from "hold."

Other factors Mr. Salem cited in the sector's favor are low price-to-earnings trading multiples, high dividend yields, stock buyback programs, and the pending reduction in Federal Deposit Insurance Corp. premiums.

Money-centers, which have lagged regional banks in the recent upturn in bank stocks, appeared to be playing catchup Thursday, said Dennis Shea of Morgan Stanley & Co.

And regional banks previously hurt by rate-sensitivity concerns, such as PNC Bank Corp. and Banc One Corp., have fared well the last couple of days, said David MacAllaster, president of MacAllaster Pitfield Mackay, a small Wall Street brokerage that invests in banks. …

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