The clouds that had been hovering over the industry parted Tuesday, and many major bank stocks rose more than a point in a rare rally for the sector.
"It's natural to see a bounce in the group given the drubbing it's taken over the last month," said Dennis Shea, a bank analyst at Morgan Stanley & Co. "Clearly, it was way overdone in some individual stocks and for the group in general."
Bankers Trust New York Corp. was up $1.75 to $58.875; Citicorp gained 62.5 cents to $41.75; NationsBank Corp. gained $1.125 to $46.125.
While analysts welcomed the good news, they were hard-pressed to come up with a single event driving the market. Several pointed out that one day in such a volatile sector does not a rally make.
A Lehman Brothers analyst, however, said the gains reflected the solid foundations of the industry. The analyst, Mike Mayo, upgraded several banks and reiterated his positive rating on others.
Mr. Mayo upgraded Mellon Bank to "buy" from "outperform." The market has not taken Mellon's mutual fund and other management businesses into account in pricing its stock, he said.
Its shares jumped $1 to $31.75
A low price to earnings ratio has made Keycorp "too cheap to ignore," said Mr. Mayo. He expects a recently announced restucturing to increase earnings per share.
Many analysts agreed Keycorp's stock -- currently trading at about 6.5 times earnings -- was conspicuously undervalued. Several argued, however, that at least part of the depressed price was justified, with high exposure to securities and derivatives crimping earnings.
Keycorp gained 50 cents to $34.75 on the day.
Mr. Mayo also initiated coverage of Fleet Financial Corp. with an "outperform" rating, saying its efficiency initiatives could increase earnings by 17%. Stock in the Providence, R.I., bank rose 50 cents to $31.
Mr. Mayo also reiterated his "buy" ratings on CoreStates Financial Corp. and NBD Bancorp.
Banks stocks should do well, Mr. Mayo said, because the current prices reflect crisis levels. "There is no banking crisis," the Lehman Brothers analyst said.
Lehman Brothers Upgrades Ratings NewBank Old PriceKeycorp Outperform $24.25 HoldMellon Buy 30.75 OutperformFleet Outperform 30.50 (new coverage)
He said the industry has become much more efficient since the 1950s, an improvement partially masked by high deposit insurance costs. He said a proposed cut in deposit insurance premiums would help earnings.
Many think that there are several more proximate reasons for Tuesday's market rise. A rally in the bond market was cited as one driver, as the yield on the benchmark 30-year treasury bond dropped to 7.86%.
With many bank stocks trading near their 52-week lows, some said bottom fishing was a factor.
"Bank stocks have been driven down so far that they have become compelling values," said Tom Maier of Kemper Securities Inc.
Mr. Shea thinks the upswing might reflect short-selling. "When selling gets overdone and the shorts start to be fairly significant, you can see rallies like this," he said.