Top Banks' Market Value Fell 9.6% in Second Half

In a stark illustration of investor fears about rising interest rates, market capitalization of the nation's top 100 banking companies shrank by 9.6% in the second half of last year.

It was the worst period for banking equities overall since their 20.8% dive in the second half of 1990, when the industry was being hurt by anxieties about capital adequacy.

The aggregate market value of the top banks fell to $260.9 billion on Dec. 30, from $288.2 billion June 30, according to an American Banker survey with data prepared by SNL Securities.

The survey showed the lowest industry market value level since yearend 1992. In effect, two years of expansion in bank stock prices, and the respect that inspires on Wall Street, were wiped out as the Federal Reserve Board tightened credit to slacken economic growth and thwart inflation.

A seasoned industry watcher blamed the dramatic slippage suffered by banks on mistaken notions in the investment community.

"Everybody thinks they understand interest rates," said Harry V. Keefe Jr., chairman of Keefe Managers and a veteran bank analyst and fund manager.

"They apply that to banks and their net interest margins," he said. "Margins could go down 50 basis points, but it's a fact that banks' expenses are also going down, with the result that the net income is going up."

Moreover, Mr. Keefe believes, investors tend to think the problems at banks are industrywide, when in fact they are usually not serious beyond a small group of institutions.

He noted that share prices for PNC Bank Corp., Pittsburgh, and Banc One Corp., Columbus, Ohio, slumped last year on worries about margin erosion and other problems at those superregional banking companies.

PNC suffered a 27.1% decline in its total market value last year, second only to Bankers Trust New York Corp., which eroded 32.5% in value on fears about its derivatives business.

First of America Bank Corp. ranked third in loss of market power, with a 25% decline. Banc One ranked fourth, declining 23.9%.

But the same concerns pulled down share prices for banks across the board, Mr. Keefe said, and contributed significantly to the shrinkage of the industry's market capitalization.

Another analyst sees shifting market trends as a big culprit.

"We've had momentum players involved with banks this time around, with the result that there's been lots of rotation out of a group that had done very well," said Nancy A. Bush, regional bank analyst at Brown Brothers, Harriman & Co.

"Now, you have this general boredom with the (bank stock) group," she said. "The story is the same, and it isn't likely to change until the rate picture is clarified."

The bulk of the damage to banks was done during the fourth quarter, when the industry's capitalization shrank by 8%, the most in a single quarter since 1990.

Worst hit was Central Fidelity Banks Inc., Richmond, Va., off 21.8%., followed by State Street Boston Corp., 21.6%; First Security Corp., Salt Lake City, also 21.6%; and Shawmut National Corp., Hartford, Conn., 21.1%.

New York's Citicorp retained its top industry position for the second straight quarter, followed by BankAmerica Corp., NationsBank Corp., and J.P. Morgan & Co.

Citicorp suffered a fourth-quarter falloff of 2.6%, but it was up by a healthy 14.3% for the year and tallied a market valuation of $16.73 billion on Dec. 30.

Second-ranking BankAmerica was not far behind, at $16.33 billion, and might have regained the No. 1 spot except for its 11.9% decline for the year and 10.5% fourth-quarter slippage.

BankAmerica held the top spot for seven consecutive quarters in 1992 and 1993. It gave way to Citicorp in the first quarter, regained the mountaintop in the second quarter, and surrendered it again in the third quarter.

J.P. Morgan, with yearend market capitalization of $11.5 billion, managed to gained in the rankings, moving up to fourth place from fifth a year ago, despite a 20.7% shrinkage in its value on Wall Street.

The reason was an even worse outing by Banc One, now in fifth place. After 23.9% decline last year, the Ohio bank registered market power on Dec. 30 of $10.3 billion.

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