After Day of Recovery, Banks Take Another Tumble

Bank stocks suffered another swoon Wednesday, falling back from a day of recovery in concert with the broader market.

The S&P Bank index lost 2.34% to 471.80, while the Nasdaq index of small bank stocks fell 1.35% to 1352.6. The Dow Jones industrial average lost 1.42% to 6517.01.

Big banks led the selloff; BankAmerica lost $3.25 to $100.125, First Union lost $2 to $80.50, and Chase Manhattan Bank lost $2.625 to $92.375.

And the smaller banks quickly caught on. Imperial Bancorp fell 37.5 cents to $23.25, BankUnited Financial lost 75 cents to $17.75, and Signet Bancorp lost 75 cents to $28.

Union Planters was a notable exception. As investors anticipated the stock's move to the S&P mid-cap 400, the stock rose $1.125 to $42.375.

In spite of the stormy market, experts in the investment community remained calm.

"It's always a pendulum that swings too far each way," said Joe Stieven of Stifel, Nicolaus & Co. "The stocks were probably overextended, and now investors are going for sound companies, so if the market gets beat up, there are no unexpected negative surprises that can kneecap them."

Analyst Henry "Chip" Dickson of Smith Barney stressed that the banks still have very strong franchises, though some of the group's multiple expansion has been given back.

"The correction will provide some opportunity, but there's a reluctance to be the first one in," he said. "In the past, banks have had less success meeting estimates than more recently, and they ought to do well. Part of it is just re-establishing a base from which to go on."

Anthony Conroy, head of trading at Bankers Trust, said that while the market was hardly in a state of alarm, the bond yield had put "a little bit of a blanket" over things.

Most observers expect bank stocks to rock back and forth until Friday, when employment and wage figures are released.

"It will be a flight to quality until then," Mr. Conroy said. "The stocks are stuck in a trading range until there is a clear indication of what the Fed's agenda is going to be."

William Schneider, a vice president at Salomon Brothers who trades bank stocks, noted that the bond market did not behave in a typical way in response to the news.

"This warns me that this is not a specific rate fear but asset allocation," Mr. Schneider said. "Investors are selling stocks and buying bonds, exasperating the stocks and propping up the fixed-income market."

Stocks of investment banks were also brought down. Investment banks that typically sell as a "proxy" for the market fell in Wednesday's trading.

"Investors sell them when they can, not when they have to," Mr. Schneider said, noting the run-up in the group spurred by the Dean Witter- Morgan Stanley merger announcement earlier this year.

Indeed, shares of Paine Webber Group Inc., which were booosted by takeover speculation earlier in the quarter, fell $1.625 to $28.125; Donaldson, Lufkin & Jenrette's stock fell $1.50 to $36.50; and Merrill Lynch fell $1.625 to $85.875.

Still, observers expect bank stocks to come back into favor.

"The sector will start to attract some real buying pretty soon," Mr. Schneider said."There's always cash around, and the banks are going to start showing up on valuation screens, and the analysts are going to start upping ratings and pounding the tables."

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