Bank stock prices continued to slide on Tuesday, as investors focused on the weak economy and ignored last week's cut in interest rates.
Trading in shares of Citicorp, which has been plagued by a spate of bad news in the last few weeks, was especially heavy. In late trading, Citicorp fell 87.5 cents, to $15.50.
Among other large banks, Chemical Banking Corp. dropped $1.75, to $31.50; Wells Fargo & Co. lost $1.875, to $66.625; BankAmerica Corp. fell $1, to $42.875; NationsBank Corp. was off $1.125, to $43.
Late in the day, a block of 4.4 million Chase Manhattan Corp. shares changed hands. The shares equal 3.1% of the bank's total outstanding. Chase was down 87.5 cents, to $22.
Other losers included First Chicago Corp., off $1.625, to $29.875; Fifth Third Bancorp shares, down $1.74, to $50.25; First Fidelity Bancorp., off $1.50, to $34.125; and Comerica Inc., down $1.875, to $55.875.
Among the 48 banks with the largest market capitalizations, only two gained in share price. State Street Boston Corp. was up 25 cents, to $37.625, and Mellon Bank Corp. had gained 12.5 cents, to $40.75.
Bad News on Employment
The Labor Department last week reported that nonfarm payrolls fell an unexpectedly sharp 83,000 jobs. The report prompted the Federal Reserve to cut its target rate for the federal funds rate by a quarter of a percentage point to 3%.
Some economists expect the Fed to cut the discount rate, now at 3%. The central bank usually wants to discount rate to be lower than the fed funds target.
However, the weak dollar -- hit by the big yield advantage German securities have over U.S. issues -- limits the Fed's ability to cut rates. The dollar fell again Tuesday, to 1.3935 German marks.
A weak dollar and low interest rates deter foreign investors from buying U.S. securities. Although rate cuts are typically good news for banks, the easing failed to convince investors about bank stocks.
Nor did the easing stir up the overall stock market. At the close, the Dow Jones Industrial Average had fallen 22.34 points to 3260.59.
Economy Seen as Main Drag
Nancy A. Bush, who analyzes eastern banks for Brown Brothers, Harriman & Co., said investors are focusing on the sluggish economy, rather than the rate cuts intended to spur economic activity.
She called the implications of the employment report "a little scary" and noted that last week was the first time in recent memory that stock prices failed to rise in anticipation of the rate cut.
The opportunity to lower bank funding costs through rate cuts may be waning, and the benefits of lower rates already may have been discounted by the stock market, analysts said.
"Banks can lower deposit rates only so far," said Richard Stillinger of Keefe, Bruyette & Woods Inc. "If further drops in the fed funds rate causes banks to lower the prime rate, the margin could be squeezed," he said.
Lower interest rates are typically good for banks because they cut funding costs and make it easier for borrowers to repay debt. But Mr. Stillinger said the benefits of lower rates have already been incorporated into bank share prices.
Analysts said Citicorp may have been especially vulnerable to a change in investor psychology.
In recent weeks, the bank restated second-quarter earnings downward, disclosed it had signed a memorandum of understanding with regulators, and was hit by a leak to the press of a regulatory report criticizing its mortgage operations.
"You're looking at a lot of disillusionment," said one analyst, noting that Citicorp stock had skyrocketed to the low 20s early in the year on what he called "flimsy" evidence of improvement and now was falling back just as hard.
Analysts said once the correction in bank prices is over, investors will focus on companies with opportunities to cut costs or add value through acquisitions.
"The weakest institutions should be the weakest stocks, if you're concerned about the economy," said Lawrence W. Cohn of Paine Webber Inc.Losses PersistSelected stocks at 4 p.m. Tuesday Stock Change price on dayChemical $31.50 -$1.75NationsBank 43.00 -1.125BankAmerica 42.875 -1.00Citicorp 15.50 -0.875Banc One 43.00 -0.75 Source: Reuters