Magazine article American Banker

Bank Stocks Slide Again despite Labor Cost Data

Magazine article American Banker

Bank Stocks Slide Again despite Labor Cost Data

Article excerpt

Though the government reported the smallest increase in labor costs in a year Thursday, financial stocks resumed their decline.

The Labor Department reported an increase of just 0.9% in the employment cost index for the third quarter, indicating that historically low unemployment has not put pressure on wages.

Normally, interest-rate-sensitive stocks would react positively to such news, but after mixed early trading, the American Banker index of 225 banks closed down 1.03%, its index of the top 50 banks lost 1.53%, and the S&P 500 fell 0.03%. The Nasdaq rose 1.32%.

The stocks of two small banking companies were upgraded by analysts, however, as the companies appear to be bucking the conventional wisdom that the industry will have slower growth in earnings for the foreseeable future.

David H. Winton, an analyst at Keefe, Bruyette & Woods Inc., upgraded Firstfed Financial Corp. of Santa Monica, Calif., to "buy" from "market perform" because, with a $384 million market capitalization, it beat his third-quarter earnings estimate by two cents, reporting 54 cents per share. "The positive surprise relates to a better-than-expected earning asset mix and a higher net interest margin," Mr. Winton wrote in his research note.

The company reported strong loan growth, up 17% on an annualized basis from the second quarter, a relatively low 0.29% ratio of nonperforming assets, and a 2% loan-loss reserve ratio, making Firstfed an attractive investment, Mr. Winton said. "In a time when investors are concerned about credit risk, Firstfed is a good choice." The company is trading at 8.5 times Mr. Winton's 2001 earnings projection, which he also raised, to $2.55 per share from $2.25.

Firstfed escaped the market's downward move Thursday and closed up 56.25 cents, or 2.25%, at $22.875.

Mr. Winton said that interest rates should remain stable, a potential boost to net interest margins in the fourth quarter. …

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