The price slide continued for banking stocks in Wednesday's market, but more industry watchers said the selloff has been excessive and buying opportunities are available.
In afternoon trading, two-thirds of the 50 largest banking issues were tallying declines, including NationsBank Corp., off 87.5 cents to $46.75, and Banc One Corp., down 75 cents to $38.25.
Meanwhile Mellon Bank Corp. fell $1 to $54.125, Fleet Financial Corp. 62.5 cents to $31.25, and First of America Bank Corp. $1 to $38.50.
Union Planters Shares Up
Since its most recent peak on Oct. 13, the American Banker index of 225 stocks has fallen 7%. It has declined 5.6% this month while the Dow Jones industrial average has gained 3%.
One bright spot was Union Planters Corp., up $1.625 to $26.50 on renewed rumors of a takeover.
"The pessimism is overdone," said Paul R. Lesutis, managing director of Brandywine Asset Management, Wilmington, Del. "I see nothing out there for three years to hurt the banks. It's a good chance to add to positions."
|Momentum Investors' a Factor
Mr. Lesutis said he was not worried about lack of loan demand, believing it will inevitably return. Meanwhile, the revenue sources at most banks are "much more diversified" than they were even a few years ago.
He and other veteran industry watchers complain about price volatility caused by "momentum investors" who this year have tended to push up banking stocks before quarterly earnings announcements and then quickly "sell on the news."
There has been "overparticipation in the group by momentum-oriented portfolio managers who need to be constantly in motion but are not true-believer bank stock investors," said Bradford M. Johnson and Kathryn H. Bissette, analysts with Sterne, Agee & Leach Inc., Birmingham, Ala.
The analysts didn't deny that "fundamentals are peaking" for the industry. They forecast "anticlimactic" 14% average gains in earnings per share next year for regional banks after typical 25% gains this year.
Still, they "expect the bear to go into hibernation after this trading market passes." One reason they and other analysts think price declines will be limited is dividend yields.
Banks, more flush with capital than in recent years, have been increasing dividends regularly -- often by significant amounts.
Dividend Yields Attractive
Many banks' dividend yields are attractive in contrast to alternative investments in this low-interest-rate environment, Ms. Bissette and Mr. Johnson said. They believe these high yields have not been recognized by those making the "bear case" on bank stocks.
As examples, they pointed to a pair of Birmingham banks. Amsouth Bancorp and SouthTrust Corp. are expected to boost their dividends by yearend. Using those anticipated increases and yesterday's stock prices, Amsouth would yield 4.6%, and SouthTrust 3.5%.
Similarly, they calculate yields based on eventual 1994 dividend rates at 3.9% for Barnett Banks Inc., Jacksonville, Fla., and 3.9% for Deposit Guaranty Corp., Jackson, Miss. The likely yield is 3.7% for Colonial BancGroup Inc., Montgomery, Ala., and 4% for First National Bancorp., Gainesville, Ga.
All compare favorably with the alternatives:
Bank certificates of deposit yield 2.5% to 3.5% with some protection against inflation, but no growth factor. Corporate bonds, offering 6% to 7%, also have no growth factor and are at risk of being called.
Municipal bonds offer an equivalent yield of 6.5% to 7.5% but carry call risk and also lack growth potential. And the Standard & Poors 400 stock index has recently offered 2.4%.
The probability of future dividend increases offsets risks of stock price variability compared to bonds, they noted. And many small and midsize southeastern banks, they said, carry the likelihood for investors of being bought within three years.