NEW YORK - Bank shares fell for the second day in a row Friday, and money managers expect the slide to continue this week.
The selloff, coming in the wake of a string of strong earnings reports, is following a familiar pattern. For the past five quarters, bank stocks have run up in anticipation of strong profits and then given back some of the gain upon the actual announcements.
Analysts attributed the latest decline to profit taking, concerns about weak loan demand, and fears that the industry's unusually wide net interest margins are starting to shrink.
Bank Index Down Again
On Friday, the American Bankers Index of 225 bank stocks fell 1.4% following a 1.3% drop Thursday Shares of some banks, including First Union and Citicorp, plummeted between 5% and 11%. Meanwhile, the overall stock market rose 0.7% on Thursday and Friday.
Money managers believe bank shares haven't touched bottom.
"I think we are going to see a correction in the sector, but it will be less than 5%," said Sam A. Marchese, executive vice president at SIFE Trust Fund in Walnut Creek, Calif.
To be sure, the correction is not being fueled by disappointment in third-quarter profits, which started trickling out last week. "I was well above the consensus estimates for a lot of these banks, and they met my expectations," said J. Richard Fredericks, and analyst with Montgomery Securities.
The Shares of money center banks and superregionals fell the farthest last week, even among banks that had not yet reported earnings.
A selloff in money centers wasn't unexpected. The stocks were up 14.4% in the third quarter. But many regionals had little or no gains last quarter.
On Friday, J.P. Morgan, which posted a 46% gain in profits last week, saw its shares drop $1.625, to $76.125, bringing its two-day loss to 3%.
The other money centers, which have not reported yet, also fell. Shares of Chemical Banking Corp. were off $2.625, or 6% in two days.
Citicorp, the hottest bank stock this year, cooled off, losing $2.125, or 5.4%, in two days, to close Friday at $37.25.
First Union Corp.'s shares fell $2.625 to $41.375 Friday. In two days, the shares have dropped 10.2% - the biggest percentage loss among major banks.
Investors sold off First Union after the bank reported that its net interest margin had shrunk by 27 basis points to 4.73% a significant contraction.
Francis X. Suozzo, an analyst with S.G. Warburg, downgraded the bank to "hold" form "buy" Friday. He said his downgrade reflects margin pressure.
Other analysts and money managers said the market overreacted. They said the margin fell because First Union acquired a bank and a thrift with lower margins and because the size of its securities portfolio increased.
So familiar has the quarterly pattern of selloff become that money managers aren't shaken.
"We have seen the same game played for at least the past three quarters," said Mr. Marchese. "You see the earnings, sell the stock, then buy back in later."