Cullen/Frost Shares Soar Following Delayed Takeoff

Shareholders have recently cottoned to Cullen/Frost Bankers Inc., of San Antonio, the only major bank in Texas to ride out the state's economic tailspin without assistance.

After a slow start in the rally that swept up most banks early in the year, Cullen/Frost shares began moving up sharply in late June and haven't lost steam. In late trading Wednesday, the stock was at $10.875, up 25 cents, and showing a rise of 23% since the end of June.

The bank got a boost from Mark Alpert and Mark Lynch, bank analysts at Bear Stearns & Co., who recommended the bank's shares last week. They reasoned that patient investors will find the thinly traded stock a good buy at below the $11 level.

Capital and liquidity are now adequate to ensure survival in an improving Texas economy, and earnings are recovering, "albeit at a snail's pace," the analysts said.

Candidate for Acquisition

Meantime, the bank is shaping up as an attractive takeover candidate, the Bear Stearns analysts said.

Because Cullen Frost, parent of Frost National Bank, does not have a statewide franchise, "it would be most attractive to other Texas banks looking to increase market share or wanting to add a commercial lending capability to a thrift," according to the Bear Stearns assessment.

NCNB Corp., Charlotte, N.C., might face antitrust questions, they said, but Banc One Corp., Columbus, Ohio, or Chemical Banking Corp., New York, owner of Houston's Texas Commerce Bank, are possible suitors.

Frank W. Anderson, who follows bank stocks for Stephens Inc., Little Rock, Ark., has labeled Cullen/Frost "a potential turnaround play." But he added a warning that second-quarter results were "the proverbial good news, bad news story."

The good news was the company survived its second regulatory exam in less than 12 months.

The bad news was Cullen/Frost suffered a net second-quarter loss of $2.96 million, or 33 cents per share, despite securities gains of $2 million. However, the poor showing partly reflected a $5.4 million legal judgment against the company.

The results led Mr. Anderson to lower his 1991 operating-earnings-per-share estimate to 25 cents, from 30 cents.

At the same time, he noted improvement in the bank's nonperforming assets, which include $39 million in nonperforming loans. NPAs declined to $123 million on June 30, from $127 million on March 31, and $137 million a year earlier.

He also pointed out that sales of foreclosed assets this year have outpaced the rate of last year's sales, which totaled $15 to $16 million.

Mr. Anderson said a merger or acquisition of Cullen/Frost is a longer-term possibility as banking industry consolidation continues. But he does not believe a deal is likely before the company has made a reasonable earnings recovery and can command a good price.

Major bank stocks turned mixed on Wednesday, in line with other stocks, as investors declined to extend the rally of the previous day, which was sparked by news of credit-easing moves by the Federal Reserve System.

New York's J.P. Morgan & Co. and Detroit's Manufacturers National Corp. were the leading gainers among banks. Morgan was up $1.125, to $53.375, and Manufacturers was up $1.125, to $66.25.

Among the major California banks, BankAmerica was up 75 cents, to $36.25, and Security Pacific Corp. rose 50 cents, to $23.375. But Wells Fargo & Co. was down 62.5 cents, to $69.375, and First Interstate Bancorp slid 37.5 cents, to $27.25.

William M. Griffin, a major player in regional bank stocks, has reduced his interest in People's Savings Financial Corp., New Britain, Conn., according to a Securities and Exchange Commission filing.

He reduced his stake to 7.8%, or 158,000 shares, from 9.6%. The investor sold 37,500 People's Savings shares between July 9 and July 24 for $8.50 to $8.87 each, according to the filing. The stock was up 50 cents, to $9.25, on Wednesday.

In the thrift sector, Washington Federal Savings, Seattle, was up $1.50, to $37.50. Among government-sponsored enterprises, shares of the Federal National Mortgage Association was up 87.5 cents, to $59.625.

Countrywide Credit Industries, Pasadena, Calif., the nation's publicly traded mortgage banking firm, was up 37.5 cents, to $22.375.

PHOTO : A Late Start

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