It began on Halloween 1990 after a frightening 18-month bear market that underlined the grimmest period for the country's banking industry since the Great Depression. From that point until now, the American Banker index of the nation's largest publicly traded banks has soared nearly 250%, even after accounting for last week's downdraft. And some individual banks have posted far more impressive gains in market value. "We've been on the bottom and we've been on top. Believe me, it's much nicer up here on top," reflected Frank J. Barkocy, banking analyst at Advest Inc. On the bottom, five autumns ago, the shares of many familiar banks were selling at stunningly low levels. Bank of Boston was available at $6.25 a share, First Bank System at $9.75, Chase Manhattan Corp. at $10.25, Bank of New York at $13.87 and First Interstate Bancorp at $17. All were at deep 52-week lows. "The average bank stock was down about 70% for the year, and there were only a few banks among the top 25 in the industry selling for over $20," recalled George M. Salem of Gerard Klauer Mattison & Co. Indeed, Banc One Corp. sold at $20, Bankers Trust New York Co. at $29.37, and J.P. Morgan & Co. at $35.87, while BankAmerica could be had for $18.75 and NationsBank Corp. at $17.125. "The industry looked like it was bleeding to death," said James J. McDermott Jr., president of Keefe, Bruyette & Woods Inc., the broker-dealer specializing in bank securities. "In those first 10 months of 1990 the banks hemorrhaged market capitalization. Something close to $65 billion was simply washed away," he said. "When I took this job in October of that year, I thought about those deck chairs on the Titantic," Mr. McDermott said. "It's certainly an appropriate moment to reflect on the incredible sea change this industry has undergone." Bank of Boston offers one of the most dramatic examples of how much banks have been transformed in the estimation of Wall Street. Five years ago the market value of that venerable bank was less than $600 million. Its management was peering into the abyss as New England struggled with an epic fall in real estate values. But at the end of this year's third quarter, Bank of Boston's market capital exceeded $5.34 billion, for a five-year gain of around 800%. Its stock price this year has neared $50. Real estate was the great mania of the '80s, especially in the Northeast and on the West Coast, where the Reagan administration's deficit spending on defense and technology fueled the boom. When the bubble burst, banks found themselves with huge loan problems. At the behest of regulators, already under fire from Congress over the thrift industry's debacle, banks were compelled to swallow big losses and build large reserves while watching their stocks nose dive. Indeed, the role of the regulators, particularly the Office of the Comptroller of the Currency, remains a hotly debated issue among banking industry observers. Some on Wall Street who went through the big banking industry scare of half a decade ago remain somewhat haunted by what the supervisors did, and they remain highly critical. "The regulators totally overreacted at the time, forced the banks to stop lending and precipitated a recession," said Katrina Blecher of Gruntal & Co., New York. "Stocks got to the lows they reached in October 1990 in part because the regulators had panicked," said Lawrence W. Cohn of PaineWebber Inc. "This is a regulated industry, and it matters what the regulators do. The last credit cycle was made worse because they overreacted," he said. "I think a lot of what the regulators did reflected their frustration at being unable to rein in the banks during the prior expansion," Mr. Cohn asserted. "They used the contraction to punish the wayward banks, and in the process punished everyone else as well. "The industry is getting some dramatic recoveries on real estate loans, even today," Mr. Cohn continued, "which shows that the regulators were too aggressive in forcing chargeoffs." But others take a different view of the regulatory pressure imposed on banks at the time, which ultimately led to the most widespread omission of common stock dividends by banks since the 1930s. "Many bankers in their most candid moments will admit that, while it was very painful, the measures forced by the regulators helped set up the prosperity the industry is enjoying today," said Nancy A. Bush of Brown Brothers, Harriman & Co., New York. "The banks were forced to raise capital, forced to get the bad assets off their books, and forced, basically, not to be like Japan," maintained Ms. Bush. The bursting of an enormous asset-valuation bubble in Japan several years ago saddled that country's banking system with huge losses. However, regulators there have been far slower than their American counterparts to force a day of reckoning. Coincidentally or not, the seriously weakened Japanese economy is now struggling to break out of a deflationary spiral. Another analyst with a milder opinion of the regulatory efforts of 1989- 90 is John J. Mason of Interstate Johnson Lane."In eight or nine months, into 1991, we had a virtually complete recovery in most bank stocks," he noted. By contrast, Mr. Mason recalled the lingering problems and anemic stock valuations for banks in the 1970s, dating to involvement with real estate investment trusts in the early part of that decade. "Many bank stocks did not fully recover until 1978, or in some cases 1980," he said, "and by then we were in a very different part of the economic cycle," with a recession looming. "So, in retrospect, the comptroller of the currency may well have saved us five or six years of wandering," Mr. Mason said. "Perhaps he deserves a medal. But not an overly large one, of course."

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