Bank stocks broke a four-day slump Tuesday to jump sharply higher in heavy trading.
Both large and small commercial banks were caught in the swell, as concerns about inflation and first-quarter earnings abated.
A late-day selloff wiped out a strong gain for the Dow Jones industrial average, which was up only 17.44 points-well off the 93-point rise in the morning. Bank stocks generally held on to their gains, with the Standard & Poor's bank index rising 1.83%, and the Nasdaq bank index eking out a 0.08% increase.
Among the notable gainers were BankAmerica Corp., up $1.625, to $82.625; Bankers Trust New York Corp., rising $4.6875, to $120.3125; and Chase Manhattan Corp., up $1.125, to $134.875.
Long Island Bancorp's shares surged almost $2 in morning trading as its board and top management huddled at an Orlando resort to consider acquisition offers from several New York-area rivals. When no deal immediately materialized and the group scheduled another session for after business hours, shares fell back. They finished the day at $63.25, up 31.25 cents.
First Empire State Corp. nearly became the first publicly traded banking company stock to close above $500. Shares of the Buffalo banking company, whose owners include investor Warren Buffett, gained $9.875, to $499.875. Some analysts say the company would be worth $700 a share in a takeover.
Market watchers welcomed the day's spark. "This is a very nice bump off of the recent pullback," said Joe D. Famoso of Keefe, Bruyette & Woods.
The Federal Reserve Board reinforced the optimism by refraining from action on overnight lending rates, a demonstration of stability welcomed by lending institutions.
But analysts noted a wave of profit taking about an hour after the Fed's decision was announced. Thrifts had a tougher time than commercial banks, on continued concerns about a flat yield curve that can crimp their profits. Washington Mutual, for instance, lost 56.25 cents, to close at $71.25
Bank stocks in particular had been targeted for selloffs in recent days as the market grew skittish about first-quarter earnings. But on Tuesday, BB&T Corp. was up $1.5625, to $67.6875; First Union Corp. rose 62.5 cents, to $56.75; Mellon Bank Corp. gained 75 cents, to $63.50; and Republic New York Corp. jumped $3, to $133.375.
Investors appeared calmed by a round of statements from banking analysts, indicating the sector can expect few earnings surprises and 10%- or-higher revenue growth.
"Banks and thrifts should be able to sustain solid earnings momentum for the first quarter and for several quarters to come," said Frank J. Barkocy, banking analyst at Josephthal & Co.
Benign interest rate and economic environments, stable net interest margins, healthy loan demand, and solid growth in fee income all favor bank stocks, Mr. Barkocy said.
Long Island Bancorp is one company whose shares have taken on a life of their own lately. They have soared more than 25% since early February, when word of an offer from Astoria Financial Corp. surfaced.
Long Island Bancorp, based in Melville, N.Y., has a branch network and deposit base in one of the country's more affluent markets. It is seen as a prize that would bring in over $1.5 billion-or more than $60 a share-from operations alone.
The $5.9 billion-asset institution could fetch an additional $12 or more per share based on the anticipated value of a goodwill lawsuit against the government, analysts said.
Long Island Bancorp's board members and top executives were said to be considering offers from Astoria Financial Corp., Dime Bancorp, Greenpoint Financial Corp., and North Fork Bancorp.
One source said North Fork and Dime appeared to be the highest bidders.
Long Island Bancorp's chief executive, John Conefry, told American Banker he had "nothing to say" when his meeting with the board broke in late morning.
The board and managers were to reconvene at 6 p.m.