The market value of the nation's 100 largest banks edged up a scant 0.77% during the second quarter, in sharp contrast to the breakneck growth rate of previous quarters.
The biggest reason for the slackened growth, most industry observers agreed, was the rash of low-premium mergers of equals that drained investors' enthusiasm for bank stocks, along with elevated fears of fallout from Asia's economic shakeout.
At June 30, the 100 largest banking companies had an aggregate market capitalization of $959 billion. NationsBank Corp. was again the nation's No. 1 banking company in market value, at $73.8 billion. (Complete table on page 25).
"A tremendous amount of money has been poured into bank stocks over the past couple of years anticipating easy gains on consolidation," said Lawrence W. Cohn, research director at Ryan, Beck & Co., Livingston, N.J.
"In the process, that money has driven bank stocks to a point where most acquirers are no longer willing, nor can they afford, to pay substantial premiums over market," he said. "So you had a series of transactions done with no premiums. Not surprisingly, that has been no fun for investors, and money has left the group."
In a notable example, the market value of First Chicago NBD Corp., which announced April 13 it would sell to Banc One Corp., slipped 1.31%, to $25.4 billion. Banc One's own valuation fell 3.75%, to $39 billion.
Market capitalization shrank during the quarter at numerous banks viewed as likely takeover targets. The value of PNC Bank Corp., Pittsburgh, fell by $2.4 billion, or 12.8%, to $16 billion.
Similarly, Crestar Financial Corp., Richmond, Va., skidded 7.7%, to $5.5 billion, and Huntington Bancshares, Columbus, Ohio, declined 7.5%, to $6.4 billion.
Concerns about Asia's economic anguish also cast a pall over much of the quarter. Among the most internationally oriented institutions, New York's J.P. Morgan & Co. was off 12.8% in market value, to $20.9 billion. Bankers Trust Corp. was off 5%, to $11.3 billion.
A few large companies bucked the trend, chief among them Chase Manhattan Corp., whose market power grew 13.4% during the quarter, to $64.3 billion. Chase was the third-largest U.S. bank in market value at June 30, behind NationsBank and Citicorp, whose capitalization was up 3.5%, to $67.4 billion.
Overall, the second-quarter slowdown in valuation growth for the 100 banking industry leaders was striking after the 10% gain in the first quarter that had capped huge advances in the previous three years-50.6% last year, 45.5% in 1996, and 52.7% in 1995.
And it set off some grumbling among analysts, who noted that some mid- cap banking companies had actually been losing momentum for six months. "The market is as overly pessimistic about the outlook for mergers as it was overly optimistic last December," said Sean J. Ryan of Bear, Stearns & Co.
"Despite the recent spate of mergers of equals, and the dire forecasts it has engendered, we believe that bank takeovers will continue to be consummated at attractive premiums," he recently told clients.
But Mr. Cohn also suggested that "part of what we are seeing now is simply digestion of previous huge step-ups in valuation.
"In the long run, what you know is that increases in valuation are going to track changes in earnings growth," he said. "You can't keep taking stocks up 25% in an industry that is growing its earnings at 11% or 12%. We are reaching the point of realizing that.
"We think bank earnings are capable of growing in the 9% to 12% range," he said. "That may not make them the most spectacular stocks in the world, but they will be very respectable."
