First Interstate Bancorp's shares have become among the biggest casualties of the prolonged selloff in bank stocks.
Shares of the Los Angeles-based superregional have plunged 16% in the past four weeks, nearly double the drop of the American Banker index of 225 banks. The shares traded at $56.875, up 75 cents, late Monday afternoon, around seven times trailing earnings.
Last week, there were signs that the severity of the fall was easing. The bank's shares dropped 3.4%, only slightly outpacing the 2.6% drop in the index.
Solid Financials
Analysts and money managers said that the plummeting share price didn't reflect the discovery of anything wrong with First Interstate's financials, which were solid at the end of last quarter.
Rather, the shares got caught up in the general bank selloff that began in early October.
Back then, investors began selling off shares because they believed that banks would report smaller gains in earnings next year than this year.
That selloff gained momentum when J.P. Morgan & Co.'s lead bank announced it was cutting its prime lending rate to 5.5%.
Investors worried that other banks would follow, and the dip in prime rates would narrow profit margins and hurt earnings.
"You've had investors that are paring back their over-weighting in the group," said Sandra Flannigan, an analyst with Merrill Lynch & Co. "I don't think there is anything to do with the new negative expectations of the company."
In Line with Peers
The plunge in First Interstate's shares has brought the stock back in line with other superregionals. First Interstate is now 17.5% off its 52-week high, about where the rest of the group is, according to Ms. Flannigan.
A First Interstate spokesman said the "drop reflects a similar dip for most banks during the same period."
Even with the selloff, First Interstate's shares are up 20% on the year, one of the better performances among major banks.
Investors bid up the price of the stock because they believed it was a turnaround story.
Falling Credit Costs
Two years ago, First Interstate had some of the worst credit quality problems in the industry. But nonperforming assets were down to 1.8% of assets at the end of the third quarter, under the average for superregionals, said Ms. Flannigan.
Ms. Flannigan is still a believer in the stock. She forecasts that the bank's per-share earnings will be $6.65 this year and $7.60 in 1994. About 70 cents of that gain comes from falling credit costs.
More important, the bank reported 6% loan growth in the third quarter, a strong performance for a California-based bank.
Much of that growth came from outside California, particularly in Texas, Nevada, and Oregon.
