Newspaper article THE JOURNAL RECORD

Bank Stocks Endure Sobering Downturn

Newspaper article THE JOURNAL RECORD

Bank Stocks Endure Sobering Downturn

Article excerpt

Bank stocks, among the sizzlers in the stock market's bull run of the last few years, have been battered in recent weeks.

The villains are varied -- financial turmoil abroad, concern about how easily some banks will deliver on the promises of their mega- mergers, escalating worries from regulators about bad loans both here and abroad. The extent of the drubbing is sobering.

Since mid-July, bank stocks have fallen twice as much as the Standard & Poor's 500-stock index. The S&P money-center banks index, representing the country's largest international banks, has plunged 15.3 percent since July 15. Its counterpart, the S&P index of major regional banks, has sunk 14.3 percent.

The downturn has far outpaced the 7.8 percent drop in the broad stock market and exceeds the weakness among other financial services companies sensitive to market sentiment, namely investment banks and brokerage firms.

Analysts are of many minds about the outlook for banking stocks, with some sounding alarms and others remaining cautiously optimistic. But investors' opinions have been more unified. They have punted their bank holdings over the last month.

To wit, a brief stroll through the wreckage:

Suntrust Banks, down 23 percent; Banc One, down 22 percent; First Chicago, down 21 percent; BankBoston, down 21 percent; First Union, down 19 percent; Citicorp, down 17.5 percent; Bankers Trust, down 16.3 percent; American Express, down 16 percent; NationsBank, down 15 percent; BankAmerica, down 15 percent; Norwest, down 15 percent; Wells Fargo, down 14.3 percent, and Chase Manhattan, down 11.5 percent.

Bank stocks posted a solid rebound Monday. And the fact that the bottom has fallen out of some bank stocks with such unforgiving rapidity may be just another sign that investors are too quick to flee stocks in an uncertain market.

Some stock analysts suggest that the sell-off in bank stocks has been overdone because of inflated fears about a possible downturn in the American economy and further spillover from the Asian financial crisis.

"I think all of these companies have been oversold unless you believe the U.S. is going into a recession on the heels of problems in emerging markets," said Diane Glossman, a stock analyst with Lehman Brothers.

Henry Dickson, a stock analyst with Salomon Smith Barney, sided with Glossman. He noted that the stock price of any bank he covers with a market capitalization of more than $2 billion has doubled since the end of 1994. That performance was due, he said, to a historic reversal in the way that banks do business.

Between 1967 and 1992, banks did not earn high enough returns to justify their borrowing costs, Dickson said, culminating in the commercial real estate debacle of the late 1980s. Since 1992, banks have been earning far more than their borrowing costs, leading to a run-up in stock prices -- a trend he said would continue. …

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