As banks extended their rally to a third day Wednesday, Michael S. Mayo, an analyst at Credit Suisse First Boston, said he is standing firm on his year-old bearish outlook for banks. But this time Mr. Mayo, who once was the odd analyst out, has much more company.

Languishing stock prices, lower revenue growth, and some slight fraying in credit quality have made more bank analysts bearish on the sector. According to First Call/Thomson Financial, earnings estimates for the sector continue to slide. Analysts from Prudential Securities, Ryan, Beck & Co., and other brokerages have said they doubt the recent rallies are sustainable.

Mr. Mayo, however, remains one of the fiercest bears. In a note to clients Wednesday, he said higher interest rates, lower-quality earnings, and unrealistic expectations on the part of bank chairmen continue to plague banking companies and their stocks.

"Since our stepped-up call to sell bank stocks a year ago, the S&P bank index underperformed the S&P 500 by 25%," Mr. Mayo said. "We remain negative. Earnings are pressured, risk is higher, and the consensus is still too rosy."

The analyst said that higher interest rates have hurt banks' margins, as evidenced by revenue shortfalls at Bank One Corp., First Union Corp., National City Corp., U.S. Bancorp, KeyCorp, First Tennessee Corp., and First Security Corp. The latter is being bought by Wells Fargo & Co.

These shortfalls are likely to continue, Mr. Mayo said.

Normalized earnings may be 20% below reported earnings, Mr. Mayo said. He arrives at a normalized figure by adjusting for loan-loss reserves, which are at their lowest since 1987; aggressive accounting; one-time items; and venture capital.

Mr. Mayo said bank chairmen continue to believe they can hit long-term growth targets of 12%, but he called these goals "unrealistic."

These targets "can lead to excessive risk taking, front-loading of earnings, and more pain later on," Mr. Mayo said.

Interest rate and capital market risks have grown at banks, which have increased their interest-rate-sensitive borrowings by 15 percentage points, to 35% of the total, in the last five years. Market revenues jumped 10 percentage points, to 27% of the total, in the same time.

"A one-third decline in the stock market could reduce the average large bank's earnings by 10%," Mr. Mayo said.

Lawrence Cohn of Ryan, Beck & Co. of Livingston, N.J., has been warning investors to keep their holdings in bank stocks below the usual level since a sharp decline in the sector three years ago. He said that it only makes sense that analysts become more bearish on the group.

"We are in a more difficult time," Mr. Cohn said. "When we first started telling people to invest less in bank stocks, it was a valuation call. Bank stocks at the time were high and were being bid up by acquisition plays. But today we have real negatives, one of which is higher interest rates. And if the country heads into a recession, the implications for bank stocks will be quite negative."

Still, many analysts continue to be bullish.

Eric Rothmann, an analyst at First Security Van Kasper, said that "while bank stocks have been under pressure underlying fundamentals for selected high-quality franchises remains intact. Investors will return to these stories once they realize that earnings-per-share growth and profitability are back in vogue.''

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