Citi, Morgan, Chemical surge in market value.

Soaring stock prices led to huge gains last quarter in the market value of Citicorp, J.P. Morgan & Co., and Chemical Banking Corp., shuffling the rankings of the top banks.

Citicorp was the biggest winner, as the value of its outstanding shares jumped $3 billion, or 27%, to $14.3 billion.

That enabled the rebounding company to move up two notches in the market-value rankings, to third place. (See table of the Top 100 on back page.)

Morgan climbed a notch to second place as a 15.5% share increase added $2 billion to its market value.

The New York bank moved within $600 million of topranked BankAmerica Corp., whose market capitalization slid 2.8%, or $445 million, in the quarter, to $15.7 billion.

$1 Billion Gain for Chemical

Sixth-ranked Chemical added $1 billion in market value as its shares gained 10%, according to data compiled by SNL Securities.

Meanwhile, Banc One Corp. fell to fourth place from second as its market value sank by 7.8%, to $14.2 billion, and Nations-Bank Corp. slipped a notch to fifth place even though its capitalization climbed by 3.8%, to $13.1 billion on Sept. 30.

Overall, the 100 bank companies with the largest market capitalizations gained 4.6% in market value, or $15.4 billion, to $286.5 billion in the quarter.

Buoyed by Trading Revenues

The boosts in market value at Citicorp, Morgan, and Chemical - whose stocks were fueled by unusually large trading revenues - accounted for 40% of that gain.

Market capitalization is one measure of a bank's overall financial strength and its ability to make acquisitions.

Market capitalization is determined by multiplying the share outstanding by the share price.

None of the Top 100 issued common stock last quarter to raise capital, so market capitalization changes have come from share-price fluctuations.

Regional bank shares rose only 1.4% last quarter, underperforming the S&P 500, which gained 2.5%.

Shares of many regionals peaked in April, before going into a prolonged selloff that that took bank shares down an average of 18%. Shares of money-center banks rose 14.4% during the third quarter.

Record Gains

"The money-center banks have been moving because of the anticipated earnings from market-sensitive income," said J. Richard Fredericks, an analyst with Montgomery Securities in San Francisco.

In the second quarter, the money-centers posted record gains from trading, based on a powerful bond rally, turmoil in European currencies, and increased demand for derivatives.

"It's been hotter than blazes in trading," said Mr. Fredericks.

In the past, investors and analysts have not been confident that trading-related income is consistent or predictable. But that view is starting to soften. Mr. Fredericks, for example, expects banks to report "fabulous" levels of market-sensitive income for the third quarter.

A Bet on Trading

"Investors are betting that there's a longer half-life to the length of time that banks can make good money in trading activities," said Judah Kraushaar, an analyst at Merrill Lynch.

The shares of regional banks, however, were flat to down in the third quarter. These banks fulfilled analysts' expectations of strong earnings gains, but there were no surprises such as trading revenues to spark a rally.

Instead, money managers and analysts expressed skepticism about the possibility of loan growth and the sustainability of wide net interest margins. The market also worried that some of the more acquisitive regional banks would do a dilutive deal.

Race for Regionals

"With net interest margins topping out, regional banks have to run harder and harder to maintain the earnings growth of the past year two," said Mr. Kraushaar.

BankAmerica's shares fell slightly as investors registered doubt about the bank's ability to show revenue gains in recession-plagued California.

Banc One's decline puzzled many analysts. Mr. Fredericks, for example, believes the shares are among the cheapest around. Investors worry that the bank will make an uneconomical acquisition, or that its large derivative position will backfire.

PNC Bank Corp.'s shares fell 6.1% for the same reasons. Concerns about bad potential mergers tugged Keycorp's shares down 9.3%, causing a loss of nearly $400 million in market value. [TABULAR DATA OMITTED]

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