Wary of Asia's economic crisis, the nation's largest investors in bank stocks had far less appetite for the sector during the first quarter, new figures show.
The top 25 institutional investors in banks added only $5.4 billion, or 2.64%, to their holdings in the top 50 banks from January through March, according to CDA/Spectrum Research Services, Rockville, Md. (See tables on page 28-29.)
By contrast, they had upped their collective stake by a far meatier $10.7 billion, or 5.8%, during the prior quarter, as prospects for high- premium mergers overrode other concerns.
During the first quarter, bank stock sales by the top holders totaled $10.1467 billion, up from $9.9 billion in the fourth quarter, with some big shareholders cutting their positions significantly. At the same time, portfolio increases were minimal, according to CDA/Spectrum, a sister company of American Banker.
Institutional investors were more "skittish about bank stocks earlier in the year, because there were concerns about the problems in Asia and the effect that it will have on the U.S. economy" said bank analyst Eric E. Rothmann of Stephens Inc., Little Rock.
"We have not shaved back our position in bank stocks, but we have not done as much buying or selling as we had in the past few years," said Scott Edgar, director of research at the Sife Trust Fund, which has $1.2 billion in bank stocks under management. "We are comfortable with our portfolio, because the bank stocks that we like were put in place two to three years ago."
Mr. Edgar said, however, that bank stocks may have been less in favor during the first quarter because momentum investors did not see the strong growth in banks earnings that they had anticipated.
One fund manager, James Schmidt, executive vice president of John Hancock Funds, said the decline in buying bank stocks at his company has nothing to do with the market. Money flowing into the John Hancock Bank Fund fell off because it was closed to new investors, he said.
Mr. Rothmann said that besides worrying about Asia, institutional investors grew antsy about bank earnings as the yield curve began to flatten, making it harder to make money on the spread between deposit and loan rates.
The action for the quarter was a sharp departure from institutional investors' buying spree in the fourth quarter, when consolidation momentum hit a fever pitch.
The biggest institutional sellers of the first quarter included SunTrust Banks Inc., which sold 7.7% of its bank holdings, Barrow Hanley Mewhinney, which sold 7.3%; Pimco Advisors, 6.5%; and NationsBank Corp. 6.4%.
As the yield curve flattened and Asia's economy began to falter, some of the most popular banks began to lose favor, reported CDA/Spectrum.
Institutional investors sold off 1.11% of U.S. Bancorp, 1.03% of State Street, and 0.78% of First Chicago NBD. Overall institutional investment sank to $208.457 billion at the end of the first quarter, from $340 billion at yearend.
The same kinds of worries continued to plague bank stocks Monday, as investor fears bloomed anew on more dismal reports about the stability of Japan's economy.
The Standard & Poor's bank index fell 0.82%, while the Dow Jones industrial average dropped 0.02%. The Nasdaq Bank index weakened 0.17%, but the S&P 500 rose 0.23%.
The biggest losers of the day included Citicorp, down $1.5625 to $148.50; BankBoston Corp., down $1.1875, to $104.125; and First Union Corp., down $1.625, to $58.3125.