Bank stocks surged on Monday, buoyed by the upbeat assessment of a major Wall Street firm that the industry is still one of the best investment sectors.
Analysts Henry C. Dickson and Jacqueline Reeves of Salomon Smith Barney said during a morning meeting that the "performance of the group is expected to remain strong."
Banking fundamentals continue to impress because the survivors of the industry's consolidation process are better managed, more keenly focused on business strategy, and have lower credit costs relative to revenues, the analysts said.
The bullish report helped jolt bank stocks out of their flat performance of last week. The Standard & Poor's bank index rose 0.96%, outpacing the Dow Jones industrial average, which fell 0.04%. The Nasdaq bank index also climbed 0.84% as did the S&P 500, which rose 0.38%.
Mr. Dickson and Ms. Reeves reiterated their "buy" ratings on Bank America Corp., Bank Boston Corp., Chase Manhattan Corp., First American Corp., First Tennessee Corp., First Union Corp., Marshall & Ilsley Inc., National City Corp., and U.S. Bancorp.
They also raised their price target for 19 banks and thrifts - including Union Planters Corp. and the Magna Group Inc., which announced late Sunday that they would merge.
The market in general was lifted by news of a positive meeting between United Nations Secretary General Kofi Annan and Iraq's Saddam Hussein, which could blunt tensions between Iraq and the United States.
Some of the biggest bank sector gainers in Monday's market were Bank Boston, which rose $2, to $99.625, and Bankers Trust New York Corp., up $1.375, to $112.50.
NationsBank Corp.'s shares also surged $2.375, to $67.4375, after Credit Suisse First Boston raised its 1999 earnings estimates on the company to $5.40, from $5.10.
Shares of St. Louis banks also surged on news of the Union Planters- Magna deal.
This deal "could help trigger further consolidation in St. Louis, Tennessee, and Alabama," said banking analyst Eric E. Rothmann of Stephens & Co., Little Rock.
One example is Mercantile Bancorp, which climbed 25 cents, to $56.375.
Bank analyst Frank J. Barkocy of Josephthal & Co., New York, noted that bank stocks with trophy franchises - such as First Tennessee Corp., Firstar Corp., and Comerica Inc., also were lifted because of the Union Planters/Magna deal.
Industry consolidation is now such a strong investment theme that Josepthal is putting together a unit trust fund made up of midsize banks and thrifts likely to be taken over in the next three years. It plans to launch the Banking Growth Trust Series in April.
Mr. Barkocy, who several years ago created a similar fund for Advest & Co., Hartford, Conn., emphasized that strong fundamentals will always be the backbone of his analysis, but that consolidation is a clear and present part of the sector. "Big fish are going to eat smaller ones," he said.
Elsewhere in the market, A.G. Edward & Sons Inc., St. Louis, upgraded shares of Commerce Bancshares in Kansas City, Mo., to "accumulate" from "maintain."
"Commerce Bancshares is an excellent company which during 1997 approved its ability to capitalize on the customer fallout associated with acquisitions of its competitor," wrote bank analyst Timothy Willi.
Merger speculation is also likely to cause the company's shares to appreciate significantly, Mr. Willi said.
Commerce's stock rose $1.4375, to $68.9375.
