Bank stocks are charging ahead of the bull market.
The market rallied again Friday on news that producer prices fell 0.3% in April, the fifth decline in a row, further assuring investors that the Federal Reserve would hold the line on interest rates.
Bank stocks modestly outpaced the market Friday, and during the past month, they have done twice as well as the S&P 500 index.
The American Banker index of the 225 largest publicly traded bank stocks is up 10.2% over the past 20 trading days, versus a 4.9% gain for the S&P 500.
Friday, the S&P bank index rose 1.19%, to 551.3, while the S&P 500 rose 1.11%, to 893.2. The Dow Jones industrial average jumped 0.92% to yet another record.
While most banks soared, however, Citicorp - the largest capitalization bank stock-was on a different track amid renewed speculation that it is talking merger with American Express Co.
The speculation pumped up the charge card giant's stock by $3.375 a share, to $76.50. Citicorp marked time most of the day, hobbled by the merger speculation, as well as recurrent stories about problem loans in Thailand. However, by 4 p.m., its stock price had risen $1.375, to $120.375.
A megamerger of Citicorp and American Express would be valued in the stratospheric range of $40 billion, according to Kenneth C. Feinberg of Davis Financial. It would be "an interesting combination the Street would receive in a positive manner," said Joel W. Silverstein of Deutsche Morgan Grenfell.
Such a merger would bring Citicorp $21 billion of charge card receivables, $12.9 billion of revolving loan outstandings, mainly from the Optima card, and nearly $150 billion of managed assets through American Express Financial Advisors.
Citicorp itself, the nation's largest credit card issuer, manages $23 billion of credit card receivables in the United States alone.
But the deal has been rumored many times, and nonbelievers were quick to react.
"There's no way that what we're hearing has any truth to it," said Thomas Facciola of Lehman Brothers. He said major hurdles, like Visa International's bylaws forbidding members to issue American Express cards, would be too high to jump.
American Express and Citicorp would not comment on the rumors or market speculation.
Elsewhere, Fleet Financial Group Inc. got several nods from the investment community. Credit Suisse First Boston upgraded it to "buy" from "hold," while Keefe, Bruyette & Woods Inc. bumped the company from "attractive" to "market perform." The stock advanced $1.50 a share, to $64, a 52-week high.
Fleet is one of the lower-priced large cap stocks, said Michael L. Mayo, bank analyst at CS First Boston. "And cheap stocks have a way of going up."
Fleet's likely merger with a larger bank, another well circulated hunch on the Street, didn't influence Mr. Mayo's recommendation. "It's No. 1 in market share in New England and the fourth-largest mortgage company in the country," he said, predicting that the stock would hit $73 in six months.
Fleet also was the subject of new speculation about a possible acquisition of an investment bank. Business Week said Friday that two Boston banks-identified by market sources as Fleet and BankBoston Corp.- are interested in buying Advest Group Inc.
Shares of the Hartford, Conn., company, which has 614 retail brokers and advises on many small-bank mergers, soared $5.125, to $23.25.
The amazing bull run in the market last week was based on economic data hinting that interest rates have peaked. Notably, retail sales have been weak for three months and inflation remains subdued.
Bond prices rose dramatically on the economic news, lifting the stock market in its wake. The 30-year bond yield dropped to 6.73%.
