Spectacular quarterly earnings at superregional banking companies may reignite the bank stock rally.

A yearlong rally ran out of steam in recent months, with many investors believing that the sector had risen as much as possible without a revival in loan demand.

Fundamentals Look Good

But several regional banking companies in the last two weeks have reported higher-than-expected earnings for the third quarter, bolstered by improving credit quality, strong net interest margins, and higher fee income. These improved fundamental factors have rekindled hopes that the rally may resume.

Indeed, bank stocks have risen about 2% in a week, while the overall market was flat.

But before a full-blown rally comes, analysts say, investors must get over jitters about the presidential election and the economy.

"The boost may be delayed until economic news improves," said Anthony J. Polini of A.G. Edward & Sons.

So far, the good earnings news has had only a minimal impact on some bank stock prices. Mellon Bank Corp. is a case in point.

Tuesday, the Pittsburgh-based company announced that its third-quarter earnings had more than doubled the profit of the year-earlier period. But Mellon shares rose only 37.5 cents that day, to $45.875. By 4 p.m. Wednesday the shares had fallen 50 cents, to $45.375.

Conflicting Factors

Brent B. Erensel of UBS Securities reflects to some degree the caution the market is showing over bank stocks. On one hand, he said, the earnings reports confirmed his view that the banking industry's fundamentals have improved.

Nonetheless, Mr. Erensel, anticipating increased regulatory costs and higher interest rates, said a presidential victory by Gov. Bill Clinton Nov. 3 would prompt him to recommend a reduction in bank stock holdings.

Other analysts think investors fled the banking sector too soon.

"It appears earnings are going to be stronger for longer than thought," said Henry C. Dickson who follows midwestern banks for Kemper Securities Inc.

"These companies have done well, and maybe there was some profit-taking in the past," he said, referring to a lull in regional bank stock prices last summer.

7 Regionals' Robust Numbers

Mr. Dickson said seven regional banks have reported returns on assets of 1.2% or better in the third quarter and returns on equity greater than 17%. They are: Norwest Corp., Banc One Corp., Society Corp., Fifth Third Bancorp, Old Kent Financial Corp., Comerica Inc., and First Bank System. Other banking companies would have made the list, if not for nonrecurring charges or unusually high levels of equity.

Some analysts were impressed enough with the quarterly results to recommend short-term investment in the sector.

"We called for a trading rally," said Diane B. Glossman of Salomon Brothers Inc. "The companies are generating earnings that are at or are slightly above expectations."

So far, that trading rally has not occurred, with prices rising only modestly.

Relatively Small Movements

Norwest shares actually slipped 12.5 cents, to $39.75, in late afternoon trading Wednesday, after the company announced a 20.8% increase in quarterly earnings Tuesday.

Society Corp.'s stock price rose $1.875 a share last Friday, to $59.125, after it announced quarterly earnings had increased 38.7%. By 4 p.m. Wednesday, however, the stock was trading at $58.625, off 75 cents for the day.

Banc One Corp. gained $1.125 to $46.25 after reporting a 33% gain in quarterly earnings Tuesday, and the stock was up another 25 cents by late Wednesday. But its shares were still well below their 52-week high of $49.625.

Signs of improved credit quality at companies such as Continental Bank Corp. are also being taken as good omens for the bank stock market. "Every surprise has been positive," said Mr. Polini of A.G. Edwards.

Wednesday's Market

Shares of BankSouth Corp., Atlanta, surged $2, or 18.4%, to $12.875, on takeover speculation. First Union Corp., Charlotte, N.C., and SouthTrust Corp., Birmingham, Ala., were among the rumored suitors.

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