Banc One Corp. is gaining a few more supporters on Wall Street as it adjusts to rising rates and analysts focus afresh on traditional strengths. But the superregional still has a ways to go in reclaiming the front-running trading multiple it once enjoyed.
Investors recoiled from the $80 billion-asset Columbus, Ohio, company more than a year ago amid concerns over its asset-liability management strategy. Mostly through the purchase of interest rate swaps, Banc One had positioned itself so that liabilities were repricing more quickly than assets.
Uncertain about Banc One's potential exposure to rising rates, Wall Street headed for the sidelines, handing Banc One a major trading setback.
Analysts saw some justification for the pullback this year: Rising rates lowered Banc One's net interest margin and goaded the company into a major restructuring of its rate-sensitivity profile. Banc One's second-quarter net interest margin of 5.51% was down 78 basis points from the year-earlier period.
"Investors are probably looking at it as a value play," said Fred A. Cummings, banking analyst at McDonald & Co. "Their earnings momentum doesn't stand out. It's their valuation."
Banc One mustered growth and efficiency gains sufficient to preserve its front-running profitability. A second-quarter annualized return on average assets of 1.52% was off only 8 basis points from the first quarter and 1 basis point from a year ago. That has eased concerns about a potential black hole in Banc One's balance sheet. And it has prompted some analysts to proclaim that the selloff has been overdone.
For example, the American Banker bank stock index has risen a healthy 9.7% so far this year, while Banc One's stock is flat for the same period.
Reiterating long-standing support, Goldman, Sachs & Co. analyst Robert Albertson recently issued a "buy" rating on Banc One, arguing that the company at least should trade on a par with its peers.
Changing hands at about $34.50, or 11 times earnings for the past four quarters, Banc One's stock "is selling at a 4% or 5% discount" from the price/earnings multiples of its rivals, said Mr. Albertson.
The timing of Mr. Albertson's recommendation coincided with a corporate finance engagement for Goldman Sachs. The investment bank represented Liberty National Bancorp in its recent merger with Banc One.
Brown Brothers Harriman & Co. analyst Nancy Bush came out in favor of Banc One in late July. And Salomon Brothers Inc. analyst Carole Berger began beating the drums in May.
To substantiate their endorsements, these advocates cite Banc One's healthy loan growth, prospective efficiency gains potential for further growth through acquisition, and track record.
"This company has come through a traumatic episode in its development and emerged with both its equity and its culture intact," wrote Ms. Bush. "The franchise has formidable strengths which should not be underestimated."
While this support could help Banc One's stock, it stilt is an open question whether the issue will gain its prior luster. Among the analysts maintaining a "neutral" rating on Banc One is Sandra Flannigan of Merrill Lynch & Co., who says Banc One's revenue growth will be inhibited while it readjusts to an environment of rising rates.
"What particularly differentiates Banc One from its peers is that the company is struggling on the revenue side," said Ms. Flannigan.
"Investors are specifying growth in their valuations, but I'm not forecasting much of that at Banc One in the second half of 1994."
Fred Cullen, Banc One's chief financial officer, said the company is repositioning itself through three principal tactics: selling certain bond investments so as to cap loss exposure; slowing liabilities turnover through the issuance of two-year and three-year certificates of deposit; and purchasing interest-rate caps.
"Our objective is dramatically reducing Banc One's liability sensitivity," said Mr. Cullen. By year end, Banc One's net interest margin should stabilize at roughly 5.35%, he predicted.
That would be down nearly 100 basis points from Banc One's peak.
The stock closed at $35.125 on Friday, up 75 cents.
