Institutional Investors Bought Big Banks, Sold Regionals in 3Q

Settling for safety, the nation's institutional investors loaded up on the shares of the nation's largest banks during the third quarter while jettisoning stakes in regionals.

Institutions such as mutual funds, pension funds, insurance companies, and banks acting as trustees bought over 19 million more shares in money- center and superregional banks than they sold during the quarter ended Sept. 30, according to CDA Spectrum, Fort Lauderdale, Fla.

Conversely, these investors sold one million more shares of 50 major regional banks than they bought.

The rush of institutional investor funds into large bank stocks accentuated a rally of those stocks during the summer and into early December.

Daniel Perla, managing director at Harbor Capital Management, Stamford, Conn., attributed the increased activity in large bank stocks to fund managers looking for safe entry into the hot financial-stock sector.

"A lot of managers don't want to spend the time sifting through a bunch of banks' reports only to pick two," said Mr. Perla, who invests primarily in small banks and thrifts for his mutual fund. "So they look for highly liquid stocks that tend to move as the market moves," he said. "Which means everybody is chasing the same money-center and regional banks."

For example, the institutional investor stake in First Chicago NBD Corp. rose 5% in the third quarter, more than for any other large banking company. And the bank's shares have risen 37% in value since July 1, more than double other superregionals such as NationsBank Corp. and Wells Fargo & Co.

While most regionals have posted strong gains, money-center banks have been especially strong. Institutional investors say the money-centers' diverse lines of business offer more potential for stable earnings growth than regional banks.

"We haven't been large investors in plain vanilla regional banks, and they're still something that we don't jump into and want to invest in," said Blaine Rollins, portfolio manager at Janus Capital Corp. That is because he believes stock prices can't go up much higher.

Janus is the 10th-largest institutional holder in bank stocks, according to CDA Spectrum. The fund has a 1.99% stake in Citicorp, though it sold 13% of its shares in the third quarter.

Since July 1, the S&P 500 has increased 11% and the S&P bank index has risen 26%. Meanwhile, shares at money-center Citicorp have increased 27%, and at Chase Manhattan Corp., 28%. Superregionals NationsBank Corp. and Wells Fargo & Co. rose 16% and 15%, respectively.

"The only thing that could trip (the market) up is an adverse move in interest rates," Mr. Perla said. "We've seen a little in that with the fall of the bond market recently, but it's recovered quickly and so has the market."

But Mr. Perla said he doubted mutual fund investors would stay with banks if the Federal Reserve Bank raises interest rates.

"If there's a real move in interest rates, a lot of these funds will bail out instantly," he said, "and you will start to have real volatility on the way down."

Among the biggest buyers of bank stocks in the third quarter were banks themselves.

J.P. Morgan & Co. increased its holdings in First Chicago by 134% and now owns 1.66% of the bank. Morgan also boosted its stake in First Tennessee National Corp. by 309%, bringing its share of the bank to 2.6% .

State Street Boston Corp. boosted holdings in its $5.5 billion bank stock portfolio by $627 million, or 11%. The bank boosted its holdings in Amsouth Bancorp. by 84%, in Southern National Corp. by 55%, in Republic New York Corp. by 20%, and in Bank of New York Co. by 18%. State Street sold 5% of its holdings in PNC Bank Corp.

Portfolio managers declined to comment or were unavailable to discuss transactions.

Other significant buyers included Putnam Investment Management Inc., which increased its holdings in Banc One Corp. by 514%, bringing its stake in the Columbus, Ohio-based bank to 1.35%. And J.P. Morgan increased its holdings in Boatmen's Bancshares in the third quarter by a whopping 21,432%. Morgan now owns 1.14% of the St. Louis-based bank. Boatmen's shares soared 31% in the aftermath of NationsBank's Aug. 30 announcement that it would be buying the bank.

NationsBank experienced the greatest third-quarter drop in institutional ownership among superregionals and money-centers as investors unloaded 5.8 million more shares than they bought.

The mutual fund with the greatest holdings in bank stocks, according to CDA Spectrum, was Capital Research & Management Co. The fund sold 5% of its bank portfolio in the third quarter, bringing its bank holdings to $11.1 billion. The fund sold 11% of its holdings in Banc One, 21% of its holdings in First Union Corp., and 25% of its holdings in Boatmen's.

While Capital was selling bank shares, Fidelity Management Corp. was snapping them up, adding $1.7 billion worth of shares to its nearly $10 billion bank-stock portfolio between July 1 and Sept. 30.

The megafund increased its holdings in NationsBank by 168%, in Norwest Corp. by 122%, in National City Corp. by 247%, and in Star Banc Corp. by 144%. The fund was less active in money-centers and superregionals, boosting its holdings by 12% at Citicorp and First Chicago NBD and by 18% at BankAmerica Corp.

Fidelity ranks as the top institutional investor in credit card companies and specialty finance stocks. The fund owns 9.9% of American Express Co. and has a 7.3% interestholding in Household International Inc. It decreased its stake in this sector by 2% last quarter.

Wellington Management Co. has invested $1.2 billion, or 1.9% of its portfolio, in thrifts, more than any other fund. Its largest holding is 10.9 million shares, or 7.9%, of the California thrift Great Western Financial Corp.

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