Credit Suisse First Boston Corp. on Monday named BankBoston Corp. as its firmwide top stock selection, citing the banking company's drive for efficiency amid the industry merger wave.
BankBoston has aggressively honed operations in response to the prospect of being bought out, said Michael L. Mayo, who tracks bank stocks at Credit Suisse First Boston.
The analyst said BankBoston's moves could serve as a primer for others. "Even in the absence of a takeover, the mere threat is forcing managements to take actions to create economic value," Mr. Mayo said.
Using the recommendation, Credit Suisse will encourage its sales force to spend this week recommending BankBoston to institutional clients. In Monday's trading, BankBoston was up $1.1875, to $105.625.
BankBoston's efforts to improve include diversifying its product mix and geographic boundaries to "develop a more optimal combination of businesses," Mr. Mayo said. Investment product sales, including mutual funds, and capital market programs will offer assistance, he said.
The company also has a superior executive compensation program, Mr. Mayo said.
Right now, "the sum of BankBoston's parts are worth 25% more than the current market capitalization," Mr. Mayo said. "If those values are not realized, BankBoston could be vulnerable to a takeover."
In fact, he sees a win-win situation for investors, with BankBoston remaining independent or exacting an even greater premium from a buyer down the line.
Foreign buyers like Spanish or English banks that want greater inroads in Latin America, where BankBoston is expanding operations, could be likely bidders, Mr. Mayo said. "Or U.S. banks looking for a bargain could be interested."
Markets overall had a mixed day, rising initially on corporate merger fever then falling back somewhat as investors took profits.
The Standard & Poor's bank index ended the day up 0.05%, and the Dow Jones industrial average gained 0.40%. The Nasdaq bank index added 0.19%, and the S&P 500 dipped 0.14%.
Banks generally lagged on continued fear of an interest rate hike. But there was still enough merger sentiment to stir some buying.
Wells Fargo & Co. gained $2.4375, to $371.875, following a front-page article in Monday's Wall Street Journal discussing the prospect of a purchase by U.S. Bancorp, which closed down $1.8125, at $119.6875.
And after an appearance by their chairmen on the "Wall Street Week" television program to discuss their companies' pending merger, Citicorp was up $4 at $150, and Travelers Group rose $1.125, to $60.75, one of the few financial services firms to gain.
First City Financial Group fell 25 cents, to $31, after completing a secondary offering of 1.34 million shares at $30.75 per share.
The transaction by the Houston company included 341,000 shares offered by insiders. Proceeds, after underwriting fees, were $29.06 a share.
Among bank stocks losing the most ground, Crestar Financial Corp. dropped $1.4375, to $57.125, J.P. Morgan & Co., $1.25, to $132.125; and Mellon Bank Corp. $1.75, to $71.50.