No letup foreseen in bank stock slide.

Bank stocks sank a little lower last week, slipping behind the market's pace and confirming their out-of-favor status among investors.

With interest rates rising, most industry analysts expect the weakness in the stocks to continue this week and perhaps indefinitely.

The American Banker index of 225 bank stocks fell 0.9% in the five trading days ended last Thursday and is off 4.8% in the past month. By comparison, the Dow Jones industrial average gained 0.6% and is up 1.38% in the last month.

Friday, the bank stocks were mostly lower in failing stock and bond markets. Investors seemed rattled by the government's report that the country's trade imbalance worsened in September.

Some Friday Losers

Citicorp slipped $1 a share, to $34, in afternoon trading; First Interstate Bancorp was down $1.125, to $55.50; Fleet Financial Group was off 75 cents, to $30: and First Chicago Corp. was down 87.5 cents, to $43.75.

Bank stocks are in "the autumn of their cycle," said Anthony Davis of Dean Witter Reynolds Inc.

The bull market in bank stocks began 36 months ago. and the average cycle since 1974 has been 30 months, Mr. Davis said. With their own bull market at maturity, banks are in the midst of handing over market leadership to industrial stocks.

Tug-of-War Foreseen

In the near term, Mr. Davis anticipates an inconclusive "tug-of-war" as growth-oriented investors who have favored these stocks in the past few years depart the bank sector and value-oriented investors hunt for bargains.

Bank stocks are caught between the two schools of investing -- value and growth -- because of the now-familiar question about their prospects for revenue growth, Mr. Davis said.

Growth investors -- particularly momentum investors focused on big increases in earnings -- have driven the stocks higher because many banks in recent years benefited from falling interest rates and improving loan quality.

Revenue Prospects Dim

But except in California and some other isolated instances, that investment scenario of turnaround stocks is history. Banks now face a situation in which they have strong and clean balance sheets but no significant loan demand or alternative sources of revenue growth.

"The banking system has plenty of money and no place to go," said John J. Rooney Jr. a banking analyst at Legg Mason Wood Walker Inc. "It is very difficult to earn reasonable spreads by investing in short-term, fixed-income securities," he said.

That is particularly true in the Northeast and in California, Davis said. Business is somewhat better in the Southeast and Midwest.

Uses Excess Capital

As a result, banks have raised dividends 27% this year, on average, in an effort to put excess capital to work, he said. Some banks have initiated stock buyback plans for similar reasons.

Growth and momentum-oriented investors have seen those moves as a signal from bank managements that revenue prospects are modest. Meanwhile, value investors, focused on total return from stocks -- price appreciation plus the dividend -- have been attracted.

But Mr. Davis said money managers generally "remain overweighted in banks." They are likely to trim holdings on a cyclical basis, with the likelihood that "the industrial side of the market is going to outpace the banks next year."

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