Bank stocks took a breather Wednesday after a long and healthy run as some investors took profits and others resumed worrying about troubles in Asia.
The Standard & Poor's bank index tumbled 0.97%, a percentage drop almost twice that of the Dow Jones industrial average, which fell 0.53%. The Nasdaq bank index declined 0.25%, while the S&P 500 fell 0.44%.
Bank stocks have had substantial gains in the past week, said analyst Frank J. Barkocy of Josephthal & Co. "Those banks which have had the most significant gains are subject to some near-term profit taking."
Some of the biggest losers of the day included Chase Manhattan Corp., which slipped $2.6875, to $122.625; Citicorp, down $2.6875, to $131.50; and BankAmerica Corp., down $2.25, to $75.75.
Bank stocks enjoyed a strong run over the past week because investors placed concerns about rising bond market interest rates and Asia's economy on the back burner.
However, troubles with Asia's economy and questions about how that will affect the U.S. economy have really never gone away, according to market experts.
Analyst Richard X. Bove of Raymond James & Co. noted that bank stocks performed poorly on Wednesday in part because of a sluggish bond market. But investors remain wary of Asia's problems, particularly in its bank sector, he said.
"And they should be," said the analyst. "There is no way that you can discount a trillion dollars in bad loans. Eventually those banks will have to write off those loans. They will fight and argue about it for four or five years, but those loans will be written off. The money was lost when the loan was made."
Mr. Bove also said the International Monetary Fund effort to reform Asia's economy would be a long and difficult process.
Meanwhile, Mr. Bove said, U.S. banks are being held back by low margins and the need to provide against loan losses, both of which are becoming increasingly obvious to investors.
But despite Wednesday's downdraft, some bank shares were enlivened by a fresh round of merger speculation in the market.
Shares of First Virginia Banks Inc., Falls Church, Va., and Compass Bancshares in Birmingham, Ala., surged to new 52-week highs on heavier- than-average volume.
Bank analyst David West of Davenport & Co., Richmond, Va., said investors may be wagering that $9 billion-asset First Virginia is an ideal takeover target.
In addition to merger speculation, Compass got a lift from Morgan Keegan & Co., which reiterated its "buy" rating.
Bank analyst John Moore said that the acquisitive Compass has become a more attractive takeout target since its recent inroads in Texas and Florida.