Bucking a trend, bank stocks rallied last week after the release of quarterly earnings, raising optimism for the weeks ahead.

For the five trading days that ended last Thursday, the American Banker Bank Index was up 2%, roughly in line with the Dow Jones industrial average.

In the previous five quarters, bank shares went into a tailspin after earnings announcements, as profit taking and concerns about revenue growth selloffs.

Bullish Analysts

But now that pattern has been broken, and money managers and analysts are bullish about bank shares, which gained 1.9% in the past month versus 1.4% for the blue chips in a lackluster market.

"I think the outperforming trend will continue," said- Sam A. Marchese, investment manager for SIFE Trust Fund, Walnut Creek, Calif. "Value investitors recognize that banks will have very good earnings over the next four quarters."

Value investors, who look for cheap stocks, can find them in banks. The average price-earnings multiple is 35% less than that of the S&P 400, which trades around 17.

Bank stocks last week were aided by a rallying bond market and a slew of merger announcements, which fueled speculation of other takeovers.

Nearly half of last week's gain in the bank index came Thursday, when the bond market surged. On Friday, bank stocks were off slightly, while the Dow plummeted 27.95 points, to close at 3,539.47.

Banks have locked in solid growth in earnings for at least the rest of the year, according to many analysts. The source: falling credit costs, including loanloss provisions, and lower expenses in general.

Turnaround Stories

Banks that can benefit the most from those declining costs, so-called turnaround stories, were among last week's best performing banks. Also doing well were the two big trading banks, J.P. Morgan & Co. and Bankers Trust New York Co.

The turnarounds were led by Citicorp and Wells Fargo & Co. -- the two bank stocks that analysts either embrace or disdain. Citicorp's shares jumped 3.9%, to $33 on Friday. Wells' shares rose 4%, to $115.75.

J.P. Morgan and Bankers Trust both had record revenues from trading last quarter. Both have the potential for bigger. gains in the future. While trading revenue may be unpredictable, those two banks have track records for investors to bet on.

Morgan's shares soared 5%, to $72.75. Morgan shares are now above where they traded at yearend 1991. Bankers Trust shares jumped 3.2%, to $77.625.

Many of the so-called quality banks -- those with strong capital and low levels of bad loans -- drifted last week. NBD Bancorp and Sun Trust Banks, for example, posted little or no gain'

That's no accident, said Thomas Brown, an analyst with Donaldson, Lufkin & Jenrette Securities Co.

"I think this week is indicative of what we will seeing going forward," said Mr. Brown. "A rising tide isn't going to raise all boats."

Mr. Brown believes that for the rest of the year the best-performing stocks will be the turnaround names. These banks will be able to improve earnings, regardless of whether there's a pickup in lending. Citicorp and Wells, along with Bank of Boston Corp. and Shawmut National Corp., are the best bets, he said.

Deal by Norwest

Merger activity came roaring back last week, highlighting the industry's beneficial trend toward consolidation. Norwest Corp. announced a deal to buy First United Bank in New Mexico. PNC bought First Eastern. NationsBank announced a deal to buy $2.3 billion in receivables from a subsidiary of US West.

Speculators are trying to sniff out the next target, boosting shares prices of some small banks.

One example of speculators' attention is Pacific Western Bancshares in San Jose, Calif. Comerica Inc. told money managers last week that it wants to buy a bank in Northern California. Pacific's shares jumped $2, to $9 Thursday. In late afternoon trading Friday, the shares retreated 50 cents.

The recent Texas acquisitions, including First Amarillo by Boatmen's Bancshares, helped spur movement in the share prices of other Texas banks.

Cullen/Frost Bancshares, long thought to be a takeover target, rose $2.25 during the week, to $37.50 Friday aftenoon on heavier-than-average volume. Friday, shares of Charter Bancshares in Houston started to rise, gaining 50 cents to $13.

Two takeover targets in New Jersey received attention, Constellation and UJB Financial.

Constellation shares traded at 10.25, up 50 cents late Friday afternoon on heavy volume. As recently as June 28, it was at $8.50.

UJB's shares rose 5.9% last week, to 26.875, on average volume.

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