Banking companies were dragged along on the stock market's wild ride Monday.

The Dow Jones industrial average, which at one point in the morning was down 108 points, closed at 3,179, down 21.61 points. Bank stocks, which were down sharply most of the day, also regained some lost ground.

Shares of J.P. Morgan & Co., which had been down as much as $1.75, were quoted at $61, down $1. BankAmerica Corp., down 87.5 cents earlier, finished at $42.625, off 25 cents.

Swimming Against the Current

A couple of banks managed to score gains. Bank of New York Co. rose $1 to $45, while Bankers Trust New York Corp. gained 62.5 cents to $63.25. Bank of New York had been down as much as $1.375, while Bankers Trust had been down 25 cents.

The stock market plunged for the second straight day on Monday, as investors sold off stocks on fears that the economy is dipping back into recession and uncertainty about the presidential election.

Analysts think the bank stock sector is unlikely to face a major correction.

They expect bank stocks to strengthen modestly in the next two weeks as good third-quarter earnings are unveiled. However, the gains will likely be at the mercy of larger economic issues and the upcoming election.

"People seem more concerned about macro events, notably the election and direction of the economy than specific company earnings at the moment," said Mark Alpert, a bank analyst in New York at Alex. Brown & Sons Inc.

Improvements in Progress

"There are a lot of uncertainties out there right now, ranging from the interest rate environment to the Ross Perot factor at the polls, but I think we're a short time away from verifying some very good numbers," said Frank J. Barkocy, banking analyst at Advest Inc.

"Provided you have the intestinal fortitude, it would be a good time to step up on some of the stocks," he said, "but I would hardly blame anyone for wanting to let the dust settle."

Bank stocks trade at lower price-to-earnings multiples than the market overall, Mr. Alpert noted, but the industry's health is also much improved and this is recognized in the market.

Fewer Problems in the Making

"Another dip in the economy, a triple dip, would hardly be good for banks, since consumer and business confidence would be hurt, but the banks are not in the same exposed position they were in 1990," said George M. Salem, the bank analyst at Prudential Securities Inc.

With loan demand at low ebb for two years, there are simply fewer potential problem loans - particularly real estate loans - now than there were at the end of the long expansion of the economy during the 1980s.

At the same time, Mr. Salem noted, reserves against possible losses are far higher than they were two years ago.

Viewed as Cosmetic Surgery

Mr. Barkocy warned that a move by the Federal Reserve to cut interest rates again, to bolster the stagnant economy, could hurt bank net interest margins.

Banks could be hurt on the liability side of their balance sheets, he said. The opportunity to reduce the cost of deposits and purchased funds, a huge boost to earnings during the past year, has largely been used; and another rate cut might actually narrow margins.

Moreover, a further cut might be more cosmetic than a stimulus to demand, Mr. Barkocy said. The psychological impact of rate cutting is much smaller than it was two years ago and a further slicing of interest income for consumer could be "contractionary in impact."

Analysts Caught Off Guard

The steep selloff in the market caught analysts by surprise. Many stocks, including bank stocks, fell from the opening bell. "It has not been a day to stand and fight," said one trader.

Portfolio specialists and market strategist have begun advising clients to increase cash assets and move to blue-chip equities. That may hurt stocks overall in the near term but would help well-regarded banks and strengthen those viewed as survivors of consolidation in the industry.

"Ultimately, this could speed up the consolidation movement, although a big bank resolution by the government could shake things up for everybody," noted one industry watcher.

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