The split between regional and global banks' stocks grew more pronounced Tuesday, after regional banks posted strong third-quarter results-and BankAmerica Corp. followed Citigroup as the second newly formed worldwide banking company to get off to a difficult start.
Shares of Star Banc Corp., up $6 to $67.125, Regions Financial Corp. up $1 to $33.50, and Old Kent Financial Corp., up $1.50 to $35, were among the big gainers.
Star rose on the strength of the 34% gain in third-quarter earnings it posted Monday, while Regions and Old Kent benefited from optimism about the prosects for domestic banks.
On the other side of the coin was BankAmerica. Its shares fell 11%, to $48, on news that suggested investors' high hopes for the new global powerhouse may have been overblown.
Banks with global operations were among the few losers for the day. Chase Manhattan Corp. shares fell $1, to $41.6875, and Bankers Trust Corp. fell 37.5 cents, to $52.0625.
When BankAmerica Corp. and NationsBank Corp. announced their megamerger deal in April, they said their combination of massive size and worldwide reach would help the merged company withstand the economic blips that periodically pound banks.
As with Citigroup, the profit shortfall is related to economic hiccups around the world. BankAmerica also had a hefty hedge fund loan go bad, and now must unwind $20 billion worth of fixed-income instruments.
But the underlying question, some said, was whether the creation of massive banking companies is all it's cracked up to be.
"These banks carry with them a lot more risk together than they did apart," said Scott Edgar, director of research at Sife Trust Fund, a mutual fund that invests primarily in financial services stocks. Mr. Edgar's fund voted with its wallet, selling its entire 450,000-share stake in BankAmerica before the merger was completed.
"While these new companies may have good core franchises, they have things on their books that can wipe out an entire quarter," he said.
Most disturbing about the new BankAmerica's disclosure to investors was that it gave no indication that its exposure to hedge fund D.E. Shaw & Co. would be a problem, investors said.
On Sept. 15, before the merger was completed, the old BankAmerica said that emerging market trading losses would cut third-quarter earnings by about $330 million, but it said it still expected to post profits "in excess of $500 million."
The bank may have had no idea how bad things were getting at Shaw, a firm considered to be in the knowing hands of financial "rocket scientists." One month later, the combined company reported net income of $374 million, a $126 million shortfall.
"It looks like things really unraveled there in a hurry," Mr. Edgar said.
Other analysts said the new BankAmerica management team, considered to be among banking's best, was simply overwhelmed.
"They got pummeled on six or seven fronts," said Warburg Dillon Read bank analyst Thomas H. Hanley, who downgraded BankAmerica to "reduce," from "strong buy," because of NationsBank's "inability to properly merge" BankAmerica. "Maybe they bit off too much," he said.
One casulty of this fiasco, he said, could be BankAmerica president David A. Coulter, chairman of pre-merger BankAmerica. He arranged the BankAmerica-D.E. Shaw alliance in early 1997.
