beleaguered bank stocks started to attract bargain hunters.
Bank of America rose in the morning while most bank stocks were down, then added a bit more as banks as a group began to rally. It closed the day at $54.6875, up $1.875.
No one could account for Bank of America's strength except to say that investors were probably finding opportunity in a stock that has been badly pummeled. The stock is down 30% since mid-July, when it posted second-quarter earnings.
"People are beginning to look at a stock that's gotten unbelievably beaten up," said Carla D'Arista, a banking analyst with Friedman, Billings, Ramsey & Co., Arlington, Va. "It's rallying ahead of the group because it's gotten more beat up than the group."
Bank of America "is on the oversold side," said Denis LaPlante, a banking analyst with Fox-Pitt, Kelton of New York. "It's rebounding off of that."
For the day the Standard & Poor's bank index fell 0.24% and the Nasdaq bank index 0.85%. The bargain hunting, however, steadied the sector even as the Dow Jones industrial average fell 1.95% and the S&P 500 2.30%.
Another bank stock analysts have pegged as oversold is Amsouth Bancorp's. The Birmingham, Ala., bank's stock was up 18.75 cents, to $21.75.
Analysts said the stock has been unfairly punished for a planned acquisition of First American Corp. of Nashville, analysts said. Since Amsouth announced the deal on June 1, the stock has tumbled from $28.75. "We believe the market has thrown this baby out with the bath water," said Sean Ryan said, a banking analyst at Bear, Stearns & Co.
"We believe the deal will work, leading to a restoration of premium valuation that Amsouth enjoyed prior to the First American deal announcement," said Michael Granger, a banking analyst with J.P. Morgan Securities.
Mr. Ryan has set a $30 price target for the shares, on the basis of a price/earnings ratio of 16 times his 2000 earnings target of $1.85, or a 64% relative valuation to the Standard & Poor's 500.
"Five years ago Amsouth was just another overactive acquirer," Mr. Ryan said. "Since then management halted its expansion program and refocused its attention on operational improvement."
"Amsouth has now emerged as one of the better-run banks in the industry and, in our view, is just the sort of bank that ought to be making acquisitions," Mr. Ryan said.
Amsouth has operations in fast-growing Florida and Tennessee "as well as the sleepier but lucrative markets of Louisiana and Mississippi," Mr. Ryan said. "The slower-growing markets tend to provide ballast, mitigating the volatility that the fast-growing but intensely competitive markets such as Florida can create."
Mr. Granger set a $29 price target for Amsouth, or 15.7 times his 2000 earnings-per-share estimate.
"We believe Amsouth's earnings performance will rank it among the best banking companies in the U.S. over the next several years," Mr. Granger said.
Then again, should it stumble in its integration of First American, Amsouth "would itself be an exceptionally desirable takeover target, with a likely price in the mid-30s," Mr. Ryan said.