News of Wells Fargo & Co.'s bid for First Interstate Bancorp touched off a major rally in bank and thrift stocks, with especially heavy action on California thrift shares.
"You couldn't ask for a more exciting deal," said Bruce W. Harting, a thrift analyst at Salomon Brothers.
Mr. Harting said the high offering price and hostile nature of the bid distinguished the deal from other recent announcements that were generally shrugged off by investors. What's more, he said, investors appear to view the Wells-Interstate news as a catalyst to a long-awaited wave of consolidation in the nation's largest state.
The Standard & Poor's bank index closed up 1.12% for the day, while the broader S&P 500 index rose only 0.16%.
In Wednesday trading, First Interstate was the percent gainer of the day among stocks tracked by American Banker. The Los Angeles-based company's shares rose $34.75 to $140.75, a 33% gain. Wells scored the second greatest gain in in the group, with a 7% gain to $229.
Mr. Harting said if the deal goes through, it would eliminate bank acquisitions as an entry vehicle to the state, and attention of acquirers would shift to thrift companies such as H.F. Ahmanson & Co. and Great Western Financial Corp.
"Savings and loan stocks in California were relatively undervalued compared to the rest of the country," Mr. Harting said. "Investors were sitting on the sidelines saying 'show me some activity.' "
Investors jumped into the game upon seeing Wednesday's activity. Ahmanson's shares rose $1.50 to $27.75; Great Western was up $1.375 to $25.50. The two ranked third and fourth in American Banker's universe in percent gain for the day.
Shares of another thrift that is seen as a takeover candidate, Coast Savings Financial rose 87.5 cents to $28.
Mr. Harting said he doubted any thrift could command the price Wells is ready to pay for First Interstate - 2.77 times book value - because none can match First Interstate's return on equity. "Still, even if one assumes a price to book of 1.9 times book for California thrifts, these stocks started today on average 55% to 60% below takeover values," Mr. Harting said.
Presumed merger targets in other parts of the country gained as well, including Bank of Boston Corp., up $1.75 to $49.625; SunTrust Banks Inc., up $1.375 to $68.25; Wachovia Corp., up $2.875 to $48.125; and Barnett Banks Inc., up $1.75 to $60.125.
Citicorp was one of the few banks to miss out on the rally. Its shares fell $3.625 to $69.125 after analyst Frank DeSantis of Donaldson, Lufkin & Jenrette downgraded them to "outperform" from "buy."
