MidCap Index Trading Viewed as Mixed Blessing
A new Standard & Poor's index of 400 midsize companies' stocks will focus some extra attention on 31 superregional and regional banks when the index starts trading next week on the Chicago Board Options Exchange.
Banks on the list range in size from Wachovia Corp., with a $3.8 billion market capitalization on May 29, to Liberty National, in Louisville, Ky., with a $330 million market cap.
Standard & Poor's hopes its MidCap index will serve as a standard Wall Street reference point, a smaller cap version of the S&P 500 stock index, the most widely watched stock market barometer other than the Dow Jones industrial average.
Analysts generally welcome the listings as a good sign, though some voice concern that indexing can add to volatility of underlying stocks.
"On balance, this should be a positive for these stocks," said Frank J. Barkocy, a veteran banking industry analyst who is senior vice president for financial institutions at Advest Inc., New York.
"It suggests to the investment community that these stocks have moved up a notch, reached critical mass, and are free to be bought by institutions who previously might have passed them by," he said. But he cautioned that increased volatility in the stocks could magnify the impact of bad news.
Another bank analyst, Virginia A. Adair of Merrill Lynch Capital Markets, noted: "When stocks go into an index they sometimes get whipsawed, because they are trading in an index besides moving in reaction to their own fundamentals.
Well-Known and the Obscure
Some of the other well-known and well-regarded banks on the list are Bank of New York Co.; KeyCorp, Albany, N.Y.; Fifth Third Bancorp, Cincinnati; Bancorp Hawaii; and State Street Boston Corp.
But there are also such lesser-known banks as West One Bancorp., Boise, Idaho; Dauphin Deposit Corp., Harrisburg, Pa.; INB Financial Corp., Indianapolis; and Liberty National Bancorp, Louisville. Their smaller market capitalization may make them more vulnerable to market fluctuations resulting from index trading.
Though S&P is set to begin calculating the index on Wednesday, trading of futures and options based on the index has not yet been announced. The Chicago Board Options Exchange and the Chicago Mercantile Exchange are studying such trading, which professional investors use to hedge portfolios.
Freddie Mac Included
Financial companies will constitute 15.1% of the index and, besides banks, will include a government-sponsored enterprise, the Federal Home Loan Mortgage Corp. Freddie Mac, with $5.2 billion, has the largest market capitalization of any company in the index.
Wachovia is the largest-capitalization banking stock in the MidCap index and the sixth-largest stock in the index overall. It is larger than several banking stocks in the S&P 500, viewed as a stronghold of corporate giants.
This anomaly reflects shifting fortunes in the banking industry. Stocks of money-center banks and New England banks currently have depressed market caps but historically have ranked much higher.
For example, Chase Manhattan Corp., with a market value of $2.75 billion, is a member of the S&P 500. So is First Chicago Corp., with a market cap of $1.8 billion, and Mellon Bank Corp., Pittsburgh, at $1.5 billion.
Liberty National is the smallest-cap banking company in the MidCap index, at $326 million.
Table : Biggest Banks in the S&P MidCap Index ... Market capitalization(*) (in billions)Wachovia Corp. $3.80
Winston Salem, N.C.Bank of New York 2.16Fifth Third Bancorp 1.95
Cincinnati
And the Smallest
West One Bancorp $0.41
Boise, Idaho
MNC Financial 0.38
Baltimore
Liberty National 0.33
Louisville, Ky. (*)Figures as of May 29 Source: Standard & Poor's Corp.
