Analysts on Thursday continued to rewrite their "buy" lists, favoring banks thin could thrive amid rising interest trees.
C.J. Lawrence analyst Joe] W. Silverstein initiated coverage of Boatmen's Bancshares with a "buy," and reestablished coverage of First Interstate Bancorp, also with a "buy."
Gerard Cassidy of Hancock Institutional Equities Services boosted Bank of Boston Corp. all the way from "sell" to "buy," an unusually steep upgrade.
Mr. Silverstein, who recently joined C.J. Lawrence from Nomura Securities, reestablished Lawrence's coverage of a host of major banks with "hold" ratings, in the latest sign of the impact of rising interest rates on analysts' expectations for the industry.
But Mr. Silverstein's "buy" ratings also exemplify a growing view that a few banks will more than weather the storm thal has begun to erode net interest margins.
"Company-specific factors will be the main share price catalyst in a rising-rate environment." Mr. Silverstein said.
First Interstate shares finished the day unchanged at $79.875, Boatmen's gained 37.5 cents, to close at $30.125; and Bank of Boston was unchanged at $26.625.
Most bank stocks have taken a beating in the past five weeks. Between Sept. 1 and Oct. 4, prices of First Chicago Corp. and NationsBank Corp. stock, which Mr. Silverstein established as "holds," fell 16.6% and 14.7%. respectively.
In fact, of the top 75 banks in market value, only five did not lose ground during that period.
First Interstate has remained at the same price in that period, while Bank of Boston has gained 1.9%. Mercantile Bankshares, St. Louis, was unchanged: National City Corp., Cleveland. gained 1.4%: and Synovus Financial Corp.. Columbus, Ga., rose 2.7%
Banks will be driven by three factors, Mr. Silverstein said: revenue growth from fee and lending sources, potential as acquisition candidates or as acquirers, and cost containment.
First Interstate is helped by its imperviousness to interest rate rises, he said. "The company's balance sheet now has 33% of its asset base in its investment securities portfolio. with a relatively short duration of 1.4 years. This balance sheet posture makes First Interstate well positioned for an environment of rising interest rates and/or acceleration in loan demand."
First Interstate also unveiled a major cost-cutting initiative this year, he pointed out.
Boatmen's is helped by its trust business, the 16th-largest in the nation with $34 billion of assets under management. Trust fees account for roughly 30% of noninterest income for the company, Mr. Silverstein said.
In addition, the company's making a strong acquisition drive in mortgage banking.
And it is attractive as both an acquirer and a takeover candidate. he said.
Mr. Silverstein predicted that both First Interstate and Boatmen's would see roughly 25% stock price rises in the next 12 months.
First Interstate should reach $100 by next year, and Boatmen's $40. he said.
Other banks to which Mr. Silverstein assigned a "hold" rating include Chase Manhattan Corp., Chemical Banking Corp., Citicorp, Wells Fargo & Co., BankAmerica Corp., and Integra Financial Corp.
Mr. Cassidy said Bank of Boston had positioned itself to benefit from strong economic growth in Latin America, a pickup in the demand for its variety of business products, and the expansion of its niche consumer businesses.
The brokerage firm said it expects a dividend increase within three to four months at Bank of Boston. which is one of the handful of banks that haven't lost market value recently.
In a choppy market for bank stocks, BayBanks Inc. finished up $1.50 to $54.50, and Central Fidelity Banks Inc. was up $1 to close at $30.
The Dow Jones industrial average finished the day down 11.78 points to 3,775.56.
