Earnings Worries Produce Bargains in Bank Shares

Bargains are starting to emerge as investor worries about fourth-quarter earnings depress the overall market for bank stocks, analysts said.

Industrywide, price-to-earnings multiples have been edging down, along with profit expectations. The median, using the past 12 months' earnings as a base, has fallen to 11.6, from 11.8 in mid-November.

Conclusions are hard to draw from such a small decline. If it continued, it would mean investors see more risk in the banking business and are less willing to pay for the same earnings.

Imaginary Risks?

But analysts said investors are reacting to risks that aren't there, in some cases. And that spells "buying opportunity."

"All the stocks are getting cheap," said Cheryl Swaim of Oppenheimer & Co. She said NCNB Corp. and SunTrust Banks Inc. - both trading at about $35 a share - are especially attractive.

Analysts said some of the jitters may be justified. Banks often put off recognizing their worst credit problems until the fourth quarter, noted Lisa Todaro of SNL Securities.

But as 1991 draws to a close, analysts see an overall pessimism that afflicts banks indiscriminately.

A Glimmer of Hope

In general, fourth-quarter earnings may not be as bad as some investors feared, Ms. Swaim said. "Credit trends have started to stabilize," she said.

Sun Trust's price-earnings multiple dropped to 12.3, from 13.0, as its share price fell to $34.875 at Monday's close, from $36.875 at the end of the third quarter. NCNB's multiple is virtually unchanged since Sept. 30, at 9.6.

At Barnett Banks Inc., another southeastern company that has attracted some interest, the stock looks expensive when the price is measured against 12-month earnings. That multiple stood at 33.5, off from 36.3 at the end of the last quarter, Ms. Todaro said. But a big loss in the fourth quarter of last year skews the calculation somewhat.

The stock's price compared to the most recent quarterly earnings is a more attractive 13.8, Ms. Todaro said.

Bank of New York Co., by contrast, has lost about 18% in market valuation since Nov. 1 due to publicity on an aborted stock issue, concern over the potential impact of a cap on credit card rates on the bank's $4 billion card portfolio, and unjustified fear about its exposure to the collapse of Robert Maxwell's media empire.

The company's ratio of price to 12-month earnings dropped to 20.1, from 33.1, since Oct. 1 as the share price fell from $30.50 to $26.50.

Table : Seasonal Discounts Selected P/E ratios using 12-month earnings base Ratio Change since 9/30Bank of 20.1 -39%New York 14.9 -19

MBNABarnett Banks 33.5 -8Suntrust 12.3 -5

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