Showing few signs of fatigue, bank stocks turned in yet another banner performance during the third quarter.
The American Banker index of the nation's 225 largest publicly traded bank stocks climbed 13.9% in value in the three months ended Sept. 30, outdistancing the gains of 7.28% in the Standard & Poor's 500 stock index and 5.11% in the Dow Jones industrial average.
Banks have continued to do well in the first week of the fourth quarter. Indeed, they appear to have found renewed momentum over the past month.
"It seems clear that the rally in these stocks still has legs," said veteran banking industry analyst George M. Salem of Gerard Klauer Mattison & Co., New York.
Mr. Salem attributes the new-found strength to investors rotating into banks from technology stocks, which have recently weakened after leading the market this year.
With many strategists wary of an imminent market correction, Mr. Salem said he thinks portfolio managers are being drawn to banks by their still relatively low price-earnings ratios and high yields.
"You also get double-digit dividend increases, predictable earnings, interest sensitivity, and merger mania," he said.
Mr. Salem noted that bank stocks remain underweighted in the portfolios of important buyers. "Banks are 6% of the S&P 500, but there are people with maybe 1% in banks and up to 25% in tech stocks.
"If the tech sector keeps going the way it's been going, some of these people are going to do some major shifting, since I'm sure they would like to keep their jobs," the analyst said.
The third-quarter performance was the latest chapter of a year-long rally for banks. Over nine months, the market-weighted 225-bank index was up by an impressive 41.3%, versus the upswings of 27.3% in the S&P 500 and 24.9% in the Dow industrials over the same period.
And while bank stocks did very well, shares of major thrift institutions fared even better. The top 25 thrifts surged 17.3% during the third quarter and 53.3% over nine months.
But the true display of firepower was among specialty finance companies, including credit card issuers and mortgage bankers. The American Banker index of these stocks jumped 22% during the quarter and soared 61.5% in nine months.
Acquisitions, not surprisingly, played a big role in the banking sector's popularity with investors.
Among the top gainers of the quarter were Midlantic Corp., up 35.6%; Summit Bancorp., up 31.2% and Chase Manhattan Corp., up 30.1%. All are being acquired.
Takeover speculation, analysts say, was mostly behind the 30.4% quarterly gain in shares of Riggs National Corp., the largest independent bank left in the nation's capital.
Bank of Boston Corp., which tried in vain in July to arrange a suitable merger of equals, was up 27% for the quarter. It is also among the biggest nine-month gainers, up 84.1%.
Meanwhile, banking companies that have undertaken big acquisitions this year mostly enjoyed smaller gains. Fleet Financial Group managed a mere 1.7% quarterly gain; Boatmen's Bancshares appreciated only 5%; National City Corp. was up 5.1%; and PNC Bank Corp. gained 5.7%.
First Union Corp., which is acquiring First Fidelity Bancorp., posted a 12.7% gain for the quarter, but its nine-month improvement rate of 23.3% is well off the industry's pace.
U.S. Bancorp., much criticized in some quarters for its deal to buy West One Bancorp., beat the American Banker index for the quarter, rising 17.4%. Its nine-month gain, however, was a relatively muted 24.9%.
NationsBank Corp., which paid a healthy premium during the summer for the much smaller Bank South Corp., was ahead 25.4% for the quarter.
But the winner among the acquirers' stocks was Chemical Banking Corp., which is buying Chase Manhattan. Its shares gained 28.8% during the quarter, a clear endorsement of the deal by Wall Street. Through Sept. 30, Chemical's shares were up a noteworthy 69.7%.
Among the specialty financers, the big quarterly winners were Money Store Inc., up 98%, and Capital One Financial Corp., up 49.7%. Capital One, a card issuer, was spun off earlier this year by Signet Banking Corp.
In the thrift sector, the leader was Glendale Federal Bank, which won a big court victory in its lawsuit over the treatment of goodwill by federal regulators. Its shares were up 31%.
