Stocks: Banks tumbled along with other stocks Wednesday as gains from Tuesday's rally largely evaporated.
A few banks escaped damage, but the slide was widespread in the latest recurrence of a weak summer trading pattern for the industry's shares.
"It's been the nature of the sector for the last few weeks," said Kevin Timmons, a bank analyst with First Albany Corp. "We see a rally for a couple of days and then it dissipates. It doesn't seem as though depth is there."
Tuesday's advance occurred on a wave of investor optimism after the July reading of the consumer price index turned out to be benign, with a 0.3% increase. But Federal Reserve monetary policymakers are still widely expected to raise short-term interest rates again next week.
"You're seeing rate concerns creep back in today," said Donald Kauth, a banking analyst with Deutsche Banc Alex. Brown. "People are again thinking about a rate increase'' when the Fed's open market committee meets on Tuesday.
Mr. Kauth, who follows community banks, said his group had little to worry about if the Fed uses a light hand. "A rate increase would be good because it would help their margins," he said. "Their assets will reprice quicker than their liabilities."
For the day, the Standard & Poor's bank index fell 0.4% and the Nasdaq bank index 0.34%. The Dow Jones industrial average slipped 1.13% and the S&P 500 was off 0.84%.
Fleet Financial Group was down 68.75 cents, to $42.
As the completion of the Fleet-BankBoston deal nears, Judah Kraushaar, a banking analyst at Merrill Lynch & Co., offered an opinion on the likely fit and finish of the deal.
He said the deal, expected to close in the fourth quarter, would be "a merger offering broad earnings diversification and opportunities to leverage fast growth areas."
The merger would create "an exceptionally fast growth wholesale finance business," he said.
"We see strong financial performance" with returns on equity to exceed 20% in 2000-01 and sustainable 10% to 11% earnings per share growth, Mr. Kraushaar said.
Fleet-BankBoston "represents a true transitional merger in terms of diversification and focus on growth," he said.
The combined banking company would have "a great opportunity to reposition its wholesale banking business," Mr. Kraushaar said. "The potential is there for a solid 9% long-term earnings growth -- 10% to 11% if asset based finance and private equity were included -- even as the company invests in newer securities capabilities."
Fleet-BankBoston would have strong and improving growth in a variety of niche areas and would derive 40% of its profits from four high-growth activities investment management, Latin America, asset-based finance, and private equity, Mr. Kraushaar said.
Only one of the areas, investment management, would require "serious management attention," Mr. Kraushaar said. "However, Fleet-Boston has a solid starting market position with over $110 billion in managed assets and has barely begun to pull this business together."
"Despite criticism that Fleet has been a better buyer than operator of new businesses, we see turnarounds taking shape in mortgage banking and credit cards, Mr. Kraushaar added.
