Bank rode a roller-coaster with the stock market last week, ending on Friday with an upward surge as value buyers moved in and fears about rising interest rates receded.
Building on their showing of last Wednesday - the American Banker index was up 2% while the overall market fell 0.09% - bank stocks went still higher after the Thanksgiving Day break. As the Dow Jones industrial average gained 33.64 points on Friday, to close at 3,708.27, only six of the top 50 banks saw their share prices decline.
The rally started Wednesday, after five straight negative days had capped months in the doghouse for bank stocks.
The gains came amid a general flight from stocks to bonds that cut the yield on 30-year Treasuries to 7.93% as of Friday. The fall below the 8% threshold, which is viewed as a harbinger of inflation, helped boost banks' sagging fortunes.
Also, investors responded positively to the announcement after the markets closed last Wednesday that Bankers Trust New York Corp. had settled the federal lawsuit that Gibson Greetings Inc. had filed over derivatives losses.
Bankers Trust said it will receive $6.18 million of the roughly $20 million it was owed by Gibson. The bank called the settlement "in the interest of both parties" and said it still intends to "defend vigorously" against similar charges that Procter & Gamble Co. has filed in the same federal court in Cincinnati.
Bankers Trust's shares, which were up $1 much of Friday, finished up 37.5 cents, at $57.125.
Also, Wells Fargo & Co. shares continued to rise after the disclosure that investor Walter H. Annenberg had increased his stake in the company to 8.64% from 7.64%. Wells ended the Week at $149, up $1.50 on Friday and $5.75 Wednesday.
Wednesday was one of the best days of the year for bank stocks, in contrast to the 3.36-point decline in the Dow industrials.
"A lot of the value buyers came in on Wednesday and did some fishing," said Scott Edgar of SIFE, Trust Fund, a $450 million fund largely invested in banks. "People are looking to the banks as a place that is finally getting down to the last of its selloff, even though the market may have a little more to go."
In the last three months the sector had been virtually abandoned by investors, who fear the effect of rising interest rates on bank profits.
The Keefe, Bruyette & Woods Inc. index of 24 banks is down 16% since its high just a few months ago. And despite the improvement on Wednesday and Friday, analysts were still wary about the sector.
Dead-cat bounce" was how Denis Laplante of Fox-Pitt Kelton Inc. described what he viewed as small, temporary rally.
The prime rate is up 250 basis points this year, while deposit rates have risen only 25 basis points, the analyst said. Clearly this margin will have to shrink in 1995, and that will hurt revenues, he said.
"in the near term I do not think there is any hope," said Anthony Davis of Dean Witter Reynolds Inc. The Federal Reserve rate hikes and the securities losses reported by PNC Bank Corp. have caused a panic, and banks may still fall some more, he said.
Mr. Laplante Corp. as likely to fall further, though it gained 87.5 cents Friday, to close at $74.625. Michigan National, which last month unveiled a Dutch tender offer of between $78 and $90, has seen its shares fall from $82 the day the offer was announced.
Investors are convinced that when the bank's offer comes out in December, the numbers will be dramatically lower, said Mr. Edgar.
First Interstate Bancorp rose $1.25 to $72.75 Friday, after rising $1.625 Wednesday. First Interstate had fallen 9% since the Fed's Nov. 15 decision to hike rates.
The rally lifted Signet Banking Corp. off its 52-week low, increasing the share price over the last two trading days by $1.125, to $29.50. The price had been in a free-fall since the bank's spinoff of its credit card business earlier this month.
Though Signet's shares recovered, the spinoff, Capital One Financial Corp., finished at only $15.50 - 50 cents below the initial public offering price.