Bank stocks were among the hardest hit in the market's free-fall Monday, suffering their worst drubbing since the crash of 1987.
The American Banker bank stock index plunged 49.9 points, or 8.23%. That was the index's largest dip since Oct. 19, 1987, when it plummeted 19.34%.
On the third day of steep market declines, bank shares tumbled faster than the market at large. The Dow Jones industrial average shed a record 554.26 points, or 7.18%. Trading on the New York Stock Exchange was halted twice, marking the first implementation of curbs instituted after the '87 crash.
Much of the selling was related to jitters about the Asian markets, and multinational banks took a big hit. Citicorp, which culled 23% of its net income last year from Asian and Pacific Rim operations, dropped $13.3125, or 9.7%, to $123.3125 on fear of volatility in those regions.
But the rout was by no means confined to multinationals.
"What is surprising is the damage done to regional banks, which have virtually no exposure overseas," said Phil Cuthbertson, head trader at Keefe, Bruyette & Woods. "The environment is still good. Banks are still at a significant discount; overall their earnings are (growing) faster; and the mergers and acquisition game is alive and well."
The biggest losers among banks, in percentage terms, were Mellon Bank Corp., off 12.2% to $48.375, and BankAmerica Corp., off 10.7%, to $67.9375. State Street Corp. and CoreStates Financial Corp. were off 10.5% apiece, to $52.4375 and $67.875, respectively.
Observers said the long market rally couldn't have lasted forever.
"This is the big blow off that was expected. This thing is feeding upon itself," said Frank J. Barkocy, analyst at Josephthal Lyon & Ross.
At banks, corporate spokesmen and investor relations people warned against reading too much into a single day's trading.
"Markets like today are very here-and-now," said a Citicorp spokesman. "In terms of our Asian exposure, we're comfortable with it for the long term."
At BankBoston Corp., which has a big presence on Latin America, the phones were ringing off the hook as investors worried that Asian troubles could be repeated in other foreign markets.
"It's difficult to overcome market psychology when it's on a runaway like this," said John A. Kahwaty, director of investor relations.
"Obviously the triggering event in this bloodbath is in Asia," Mr. Kahwaty said. "One question we get a lot is from investors trying to draw analogs between the Asian markets and Latin America. We clarify that we don't have a big presence in Asia, and that any similar situations in Latin America are not in fact valid."
BankBoston's shares fell $3.8125 to $83.25.
Worsening the environment for banks stocks was an unexpectedly bullish report on housing starts, which raised fear of an interest rate hike.
Investors are looking ahead to for clues on the Federal Reserve's thinking on rates in chairman Alan Greenspan's testimony on the economic outlook Wednesday before the Joint Economic Committee.
"The world, literally, will be focused on what he says," said Bert Ely, president of Ely & Associates consulting firm in Alexandria, Va. "I think he has to tilt toward being cautiously upbeat. If he's downbeat, it's going to knock the hell out of the market."
Late Monday afternoon, Secretary of the Treasury Robert Rubin met with reporters on the steps of the Treasury Department to try to defuse the market pessimism.
Mr. Rubin said the fundamentals of the American economy are sound, prospects for future growth are strong, and "the payment and settlements systems are working effectively."
The broad market decline was so steep that afternoon trading was stopped for 30 minutes when the Dow Jones industrial average dropped 350 points, tripping a "circuit breaker" that was installed after the '87 crash. When trading resumed at 3:05 p.m., the market continued to plummet, prompting a one-hour halt at 3:30 p.m., when the total decline hit 550 points. At that stage, the market was effectively closed for the day.
Wall Street was hauntingly quiet as traders took the 30-minute time-out in midafternoon.
"It was steady attrition from the start, not much big block trading at all," said Alan L. Sarroff, an independent market maker who said he's traded at the Big Board for 30 years. "Of course I can't say where it's going to go, what's going to happen, when trading starts again."
Analysts, however, said they expect investors to start combing the wreckage for bargains shortly.
"It was a wipeout today and in the next few days you'll see a big sorting out process," said Thomas Theurkauf, a Keefe analyst.
He said financial institutions' exposure to the Asian and Pacific Rim markets could determine whether they rebound.
Investors will also do well to monitor banks' "earnings momentum" in the form of fee income, loan, asset, and efficiency ratio growth, advised Mr. Barkocy of Josephthal.
But for the near term, analysts say only the most liquid investments have appeal. "Everyone wants cash," said Mr. Berry of Keefe Bruyette. "Anything that isn't cash-based is going to be down."