Shares of the new Chase Manhattan Corp. surged Monday in their market debut, avoiding the downdrafts that often plague the stocks of newly merged companies.
Richard X. Bove, a banking industry analyst at Raymond James & Associates, St. Petersburg, Fla., noted that stocks of freshly combined banks tend to stumble out of the starting gate because "the price of the acquiring company stays under pressure."
But shares of New York-based Chase Manhattan, which merged with rival Chemical Banking Corp. on Sunday, closed at $73, up $2.50.
Also faring well were shares of Wells Fargo & Co., which completed its own merger with First Interstate Bancorp. Well Fargo's stock's closed at $264.25, up $3.25 on a day when other bank stocks were also bullish and the Standard & Poor's bank index rose 2.08%.
But when Fleet Financial Group, First Union Corp., and PNC Bank Corp. announced their most recent mergers, Mr. Bove said, "the stock went down and stayed down for three to six months."
Part of the reason for the dip is that investors perceive banks as cyclical businesses, said Mr. Bove. These days, their shareholders prefer that banks invest their "capital in share buybacks as opposed to acquisitions."
Although the merger between Wells Fargo, based in San Francisco, and First Interstate, headquartered in Los Angeles, was hailed as cost- effective, Mr. Bove does not believe its stock will perform as well in the future.
"You are talking about thousands of people losing their jobs, branches being sold, salaries being cut," the analyst noted. "Wells Fargo will deliver what it promises, but it is a difficult merger."
One advantage of the Chase-Chemical union is that it is an in-market merger. Also, the new Chase offers more product and revenue opportunities "because it is now the biggest bank in the country," he said.
Other analysts, however, view Chase's stock surge as a matter of course.
"The new Chase has excellent earning potential, combined with a good business mix," said analyst Joel Silverstein of Deutsche Morgan Grenfell/C.J. Lawrence Inc. "They also have a strong market position in each of their major businesses."
But that perception has not fully parlayed itself in the market, argued Mr. Bove.
"I think the stock should have moved a lot higher," he said. "Chemical didn't pay $20 or $30 dollars a share. They offered their own share at 1.04; so the premium isn't staggering."
Mr. Bove calculates that Chase's stock should be trading at $90 a share. "If you assume that this company should sell at 14 times its earnings - which is not outrageous - then that is three multiples above its current one, which is 24% above its current price," Mr. Bove said.
Separately, shares of Southern National Corp. slipped despite an upgrade from Wheat First, Butcher Singer. The shares closed at $27.625, down 12.5 cents.
Wheat First analyst David Stumpf upgraded Southern National to "buy" from "outperform" on the basis of the bank's recent acquisition of Regional Acceptance Corp. The deal "enhances the company's long-term earnings potential and therefore, its value, Mr. Stumpf said in a report.
