Bank Stocks Outperform Most Major Market Indexes A Bill in Congress Could Help the Industry Even More. BANKING'S UPWARD TREK
Guy Halverson, writer of The Christian Science Monitor, The Christian Science Monitor
THE United States commercial banking industry, which saw profits rise for the second year in a row in 1993, is once again posting solid financial gains at this midpoint in 1994.
Sparked by a lively economy, strong demand for loans from consumers and especially businesses, and fewer losses on problem loans, the value of bank stocks rose sharply earlier this year. Between April and mid-June, their prices climbed 10 to 12 percent. And the bull market for banks is not over yet.
"Fundamentals remain very favorable," says J. Frederick Meinke, a bank industry analyst with investment house Kemper Securities Inc. in Chicago.
Dennis Jarrett, chief technical analyst for investment house Kidder, Peabody & Co., says he sees the large money center banks - as well as financial institutions in general - showing continued "leadership" on Wall Street among major stock sectors.
Financial stocks, including bank stocks, plummeted to a low point on the Standard & Poor's 500 in 1990. This year, both large money center banks and smaller regional banks have managed to outperform the broader market. Beating market indexes
Still, many investment houses, such as Donaldson, Lufkin & Jenrette Inc., say the recent heady pace of bank-stock gains may be abating or may even be over. Even if bank revenues grow at a slower pace, banks are expected to turn in sizable profits, coming close to equaling - or possibly exceeding - last year's results, some experts say.
"We fully expect bank stocks to outperform most major market indexes this year," Mr. Meinke says. Operating revenues are strong, he notes. Consumer loan growth is also sizable. But it is not as large as before the recent round of interest-rate hikes, which caused many homeowners to pull back from plans to refinance mortgages or other big-ticket charges. Bank credit costs have been leveling off, Meinke says. Further, many banks have been posting financial recoveries on real estate losses that had been charged against profits in previous years.
Corporate lending, meanwhile, has been soaring. It is up 6 percent over 1993 levels. At the same time, banks are vying with each other to finance mergers and acquisitions.
The current optimistic outlook for the banking industry is buttressed by federal statistics showing that fewer banks are reporting losses and inadequate capital levels. …