Shares of major banks slid into the August doldrums last week, but merger fever lit a fire under the stocks of some small banks.
For the five trading days that ended Thursday, the American Banker index was off 0.27%. The Dow Jones industrial average dipped slightly more, to 0.52%. Bank shares were mixed Friday, while the Dow gained 11.46 points to close at 3,560.43.
Bank shares are expected to be more or less flat again this week, said money managers and analysts.
"The dog days of August are setting in," said Judah Kraushaar, an analyst with Merrill Lynch & Co.
One reason for last week's lackluster trading and this week's similar forecast is that money managers are still digesting the second-quarter earnings reports. Some big banks reported record trading profits and big gains in venture capital activity. The question money managers are still debating is how sustainable are those sources of revenue.
"A lot of the action in bank stocks is from money managers repositioning their holdings," said David Sloan, a trader at SIFE Trust Fund in Walnut Creek, Calif.
Last week's dull trading, however, was considered good news.
"The week was quiet, but at least bank stocks didn't give up ground," said James Schmidt, who runs the Freedom Regional Bank Fund in Boston.
Unlike previous quarters, bank shares haven't nosedived after the release of quarterly earnings.
Shares of a few big banks had sizable moves last week.
Chase Manhattan Corp.'s shares jumped 6.9% to $33.625 in late-afternoon trading Friday. Earlier in the week, Frank Suozzo, an analyst at S.G. Warburg & Co., issued a report on the bank that said it had the best prospects for total return in the industry over the next six to 12 months.
Mr. Suozzo's price target is around $42, or 10 times his 1994 earnings estimates. Given that appreciation and the dividend yield, he calculates the total return from Friday's share price at around 32%.
The shares of Corestates Financial Corp. tumbled 4%, to $54.75, after the bank announced it would acquire Constellation Bancorp. in Elizabeth, N.J., last Monday.
Investors were unhappy with the high price CoreStates paid and the slight dilution of CoreStates' book value that the merger will cause. But even more, they expressed dissatisfaction with CoreStates' record on acquisitions.
The Philadelphia bank accepted 8% dilution in its earnings per share when it acquired New Jersey National Bank. While the more recent acquisition of First Pennsylvania made more economic sense, CoreStates ran into a nest of bad loans there.
Focusing on Targets
Nevertheless, the deal for Constellation kept investors focused on mergers.
"In the past few weeks, we've seen a lot of merger announcements," said Mr. Sloan. "That lit a fire under potential takeover names."
The shares of other New Jersey banks climbed up again last week. These shares have been running up since bank stocks came out of their slump in mid-June
"New Jersey will be a battle-ground state," said Mr. Schmidt.
Shares of UJB Financial Corp. gained $1.875 last week, or 7%, to $28.875 in late trading Friday. The shares had dipped to $22 in mid-June, after a prolonged sell-off, but are now near their 52-week high.
Midlantic's shares gained only 87.5 cents last week, to $25, but its share price is higher than in mid-April. In mid-June, the shares traded around $18.
Oklahoma banks continued to be the focus of takeover speculation. In late trading, Liberty Bancorp.'s shares were up 50 cents, to $34.50., a 4.5% gain on the week.
The remaining independent banks in Texas had a quiet week, after a torrid three weeks. For example, Cullen/Frost Bankers shares were unchanged at $38.50 last week. But in the past month, the shares have jumped 13%.