Magazine article American Banker

Some Say Rally since War Began Is but a Mirage

Magazine article American Banker

Some Say Rally since War Began Is but a Mirage

Article excerpt

While bank stocks have been rallying strongly since the start of the Persian Gulf war, a number of investors remain unconvinced that the gains will last.

The American Banker index of 225 stocks is up roughly 13% since the beginning of the war. In comparison, the Dow Jones industrial average has risen about 9% and the Standard & Poor's 500 index has jumped nearly 30%.

Still, some investors see no change in fundamentals and believe the current bank stock rally will not be sustained.

|Bear Market Rally'

"We're more of the opinion that it's bear market rally," said Nancy Taylor, a bank portfolio manager at the investment arm of Legg, Mason, Wood Walker Inc.

Ms. Taylor said that over the long term banks will rebound but that high consumer and corporate debt levels will leave banks without many good lending opportunities for another six to nine months. That means the banks will not have much chance to improve their earnings in that time.

Furthermore, Ms. Taylor said banks' real estate problems are not likely to unwind anytime soon. She said that even though many bankers are saying the worst of their real estate problems are behind them, they lack credibility since they have been making the same types of statements for most of the past year.

"We'd like to see tangible evidence of that. We'd rather miss part of a movie in them and wait for more clear-cut evidence," she said.

Short-Selling Strategy

Tom Barton, a partner of Dallas-based Feshbach Brothers, which specializes in short-selling opportunities, said he not only has increased the number of bank shares he has sold short thus far this year but has also added two banks to his list. That list includes Citicorp, Wells Fargo & Co., PNC Financial Corp. and C&S/Sovran. He declined to name the two new additions.

"The situation that developed in 1989 and accelerated in 1990 will continue to accelerate in 1991 through 1992," he said. …

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