Stocks: Banks Come Storming Back From Weeklong Doldrums

Thursday, the banks came back.

A rise in the dollar, and a rally in the bond market that followed a big selloff in the Japanese equity market overnight, helped bank stocks roar back from a weeklong slump.

The S&P bank index rose 3.26%, and the Nasdaq ascended 0.99%. The Dow Jones industrial average gained 126.87 to 6,473.64.

"The bank market took some heat over the last week as investors locked in November gains, but there is still tremendous value in a lot of the banks," said Smith Barney analyst Jacqueline Reeves. "If you look at the fundamentals, the banks are really creating value for shareholders."

NationsBank Corp., helped by an upgrade to "buy" by Ruchi Madan of Prudential Securities, led the pack, soaring $4.125 to $98.25. At one point, trading had to be halted as market makers hustled to match buy and sell orders.

"NationsBank has gotten pretty cheap relative to the group," Ms. Madan said. "We expect management to update investors with a positive earnings report."

Though its amortization expense will be higher in the fourth quarter, better-than-expected savings from its merger with Boatman's Bancshares and an aggressive share repurchase program ultimately will produce high cash earnings, she said.

Ms. Madan's price target is $115 for the Charlotte, N.C.-based bank.

The analyst also reiterated a "buy" rating on Banc One Corp., helping lift its shares $1.25 to $44.125.

"This is still my favorite stock in the group," the analyst said. "Its share repurchase program and its branch restructuring next quarter will produce more cost savings and better-than-expected earnings in the next year, though expenses may be higher in the fourth quarter."

Separately, Ms. Reeves of Smith Barney added six midwestern banks to her radar screen.

She initiated coverage of Old National Bancorp, Magna Group Inc., CNB Bancshares, and Commerce Bancorp with "neutral" ratings, Marshall & Ilsley Corp. with a "buy" rating, and Mercantile Bancorp with an "outperform" rating.

"The Midwest is an attractive area to do banking," she said. "There is going to be some consolidation taking place there."

Thomas Hanley of UBS Securities initiated coverage of First Tennessee National Corp., Memphis, with a "buy" rating, lifting its shares 81 cents to $36.375.

Ms. Reeves, who also recommends the stock, estimates that over half of its total revenues are based on fee income, and many of its national lines of business rank in the top 10.

The bank has been in the bond business for 70 years, and is one of the top 10 retail mortgage originators.

First Tennessee has just $12.8 billion of assets, but it ranks behind only to Merrill Lynch in underwriting U.S. agency bonds for the last three quarters.

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