Chase Hit by Flak from Well's Bombshell

Chase Manhattan Corp. and other bank stocks helped push the market steeply lower Friday in active trading.

Friday's sell off in bank stocks represented further fallout from Wells Fargo & Co.'s surprise announcement Tuesday of a big increase in problem loans.

"I can list 20 rumors on 12 different banks now," Robert Albertson of Goldman Sach & Co. said Friday.

Chase was the third most actively traded stock on the New York Stock Exchange, falling $1.125, to $16.25, on rumors that the bank was having funding problems and would report an unexpectedly large provision for loan losses in the second quarter.

Chase denied the funding problems but would not comment on rumors about the provision.

Fallout from Review

Pressure on bank stock prices may continue for weeks, and perhaps months, as investors and analysts await the full extent of the fallout from this year's regulatory review of so-called shared national credits.

Though the exams were completed at individual banks before the close of the second quarter, the official results will not be released by regulators in Washington until later in the summer. As a result, the effects from the review could be spread out over both the second and third quarters.

The selloff in bank stocks last week followed the announcement by Wells on Tuesday that it was adding a whopping $350 million to its loan-loss reserve and writing off $180 million of bad loans, as a result of the regulatory exam of large credits that Wells originated and syndicated to other banks.

The announcement by Wells prompted fears of further bad news at other banks, though most analysts tended to view Wells as an isolated incident.

"I don't expect bombshells at other banks," said George Salem of Prudential Bache.

Still, there was enough uncertainty to create what one analyst described as an "unseemly" rumor-driven market for bank stocks.

In addition to talk about funding and other problems at Chase, there were also rumors Friday of imminent bank failures, forced mergers, and further big provisions, analysts said.

It is unclear whether Wells is attempting to reflect the full effects of the regulatory exam in its second-quarter results, or whether the problems uncovered in the exam will be spread out over both the second and third periods.

This year's exam is generally believed to have been tough.

Goldman, Sachs has contacted all the major banks that originated shared national credits. With the exception of Wells, all of the banks reported that the exams did not uncover any big credit surprises, Mr. Albertson said.

PHOTO : Bank Hit the Skids

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.