Bank stocks fell in another choppy session Tuesday, as investors continued to fret about economic turmoil in Asia.
In the last week the Dow Jones industrial average has fallen 384.63 points on weakening investor confidence, as concerns about corporate earnings mount.
"There are a lot of scared people in the market," said one trader, noting that trading volume was down for the day. "Investors are nervous because of the way the market has been acting."
As the market sags, long-hibernating bears have begun to stir.
Indeed, one of Wall Street's leading bears, Michael Metz of CIBC Oppenheimer Corp., told a conference on global investing Tuesday, "The market is in a correction and has yet to hit rock bottom."
"It's a really cloudy outlook," Mr. Metz said later in an interview with American Banker. "Expectations are too high for corporate profits. Banks may have to deal with additional writeoffs because of Southeast Asia, and we still don't really know the dimension of their derivatives exposure."
The Standard & Poor's bank index fell 0.12%, while the Dow Jones rose 0.43%. The S&P 500 climbed 0.98%, and the Nasdaq Bank index slid 0.38%.
One of the biggest gainers of the day was First Union Corp., as more investors bought into chairman Edward E. Crutchfield's message that First Union is interested only in a merger of equals. For the past week Mr. Crutchfield has been up and down the East Coast, telling investors and analysts that his days of pursuing high-priced and essentially dilutive acquisitions are over.
First Union's shares shot up $1.375, to $60.9375.
Skeptics dismissed Mr. Crutchfield's message of non-dilutive deals as a ploy to give the company's shares a much-needed boost. This week First Union completes its acquisition of Money Store. A higher stock price means the bank can complete the deal with fewer shares.
Other market experts pointed out that while Mr. Crutchfield's message has done wonders for First Union's stock, it has deflated the shares of many regional banks.
Regional banking companies viewed as prime takeover candidates "are likely to see a relative decline in their value over the next six months," said James Ellman, portfolio manager of the AIM Global Financial Services Fund.
Mr. Ellman said the shares of a number of regional banks have been inflated because of merger speculation. "If First Union is going to do merger of equals, that leaves one less acquirer" on the acquisitions front.
Other large acquisitive banks-such as NationsBank Corp. and Banc One-are also out of the loop because they are involved in mergers, Mr. Ellman pointed out.
The biggest losers of the day included potential takeout targets such as Fleet Financial Group, which fell $1, to $78; PNC Bank Corp., which slid 12.5 cents, to $54.75; and Mellon Bank Corp., down 18.75 cents, to $64.75.
Bank analyst Richard X. Bove of Raymond James & Associates, St. Petersburg, Fla., said regional banks are sliding for another reason. Many people, he said, have misinterpreted Mr. Crutchfield's comments.
"What he is essentially saying is that the prices of the banks that he wants to buy are too expensive," Mr. Bove said. "And the real reason no one can afford to pay the expected prices is because the assets of these banks are not going to give them the return they require."