Money managers expect bank stocks to outperform the slumping Dow Jones industrials for the rest of the year.
The push has begun. The 225 stocks in the American Banker index have risen an average 3% since Nov. 2, versus a 1% decline in the Dow Jones industrial average.
"We expect a blowout for the rest of the year," said Miles Seifert, chairman of Gray, Seifert & Co., a New York-based money manager that specializes in mid-size banks.
Why Banks Are Hot
Investors have been pouring money into bank stocks for a variety of reasons: Record profits, signs that credit problems are under control everywhere but on the West Coast, dividend increases, and cheap valuations.
Of equal importance, say money managers, is a more sanguine view of the economy, as investors give President-elect Bill Clinton the benefit of the doubt and no longer worry about a triple-dip recession and its impact on banks.
"The regionals have led this market, followed by the larger community banks," said Robert A. Bonelli, who runs a bank equity fund for Ernst & Co. in New York.
BayBanks Inc. is among the biggest gainers since Nov. 2, rising about 10%, to $38.25 as of Friday. The Boston company's stock has risen that much despite its recent offering of two million common shares
Other leaders were PNC Financial Corp., whose shares jumped 9.3%, to $29.25, including an 87.5-cent gain on Friday; Fleet Financial Group Inc., which rose 10%, to $31.75; and NationsBank Corp., which gained 8.6%, to $50.875, largely on news that it was buying most of the consumer loan portfolio of a Chrysler Corp. unit.
Some large New York institutions, such as Bankers Trust New York Corp. and J.P. Morgan & Co., have been flat. But others joined in the advance, including Chase Manhattan Corp., up 10% to $26.375; and Bank of New York Co., up 6.4%. The latter's shares closed at $49.25, up almost $3 for the month.
Money managers think regional and turnaround banks are still the best plays.
Some of the names that money managers mention as their picks: Bank of New York, First Security Corp. in Salt Lake City, Bank of Boston Corp., and Continental Bank Corp. in Chicago.
The industry's earnings hit $8.5 billion in the third quarter, breaking the second-quarter record of $7.9 billion, according to Mr. Bonelli. Earnings in the fourth quarter could reach $9 billion, he said.
Generally, earnings of industrial companies languished last quarter.
For the first time in nearly two years, banks have their loan problems under control, although the level of nonperforming assets remains high. Banks are widely expected to reduce their loan-loss provisions in the fourth quarter or in the first quarter of 1993, which should boost earnings. And banks made some progress last quarter in cutting their overhead, a pattern expected to continue through 1993.
More than 20 banks rewarded investors by boosting their dividends this year, particularly in conjunction with the release of their third-quarter earnings.
In the case of a few banks, including Signet Banking Corp., First Union Corp., and Old Kent Financial Corp., the dividends jumped more than 10%.
On top of that, banks are inexpensive stock plays, with price-to-earnings multiples at about 10 and low price to book values compared with other types of corporations.