Bank stocks were dead in the water last week, as investors awaited third-quarter earnings reports, which will start pouring in today.

Though results are expected to be strong, bank stocks are already trading at the higher end of their historic valuations, so investors are entering this earnings period with caution, said Alison Deans at Smith Barney Shearson.

Said Thomas Brown at Donaldson, Lufkin & Jenrette: "I'm not sure when we see results whether they will be compelling enough in either direction to force a lot of action" in the market.

In the five trading days ended last Thursday, the American Banker index of 225 bank stocks was essentially flat, edging up just 0.09%. For the same period, the Dow Jones industrial average rose a meager 0.8%.

On Friday, bank stocks got an early boost from a rally in the bond market, which also sent the Dow up nearly 15 points early in the day. As the session wore on, the broad market started retreating, and bank stocks eventually followed. In the last hour of trading, bank stocks were generally mixed.

Morgan to Get a Jump

Among the New York money-center banks, Chemical Banking Corp. has already tipped its hand about third-quarter results, disclosing last week that earnings will exceed $1.37 a share - a record for the bank. The shares rose 25 cents Wednesday to $43.375 in response. On Friday, they traded at $44.875, down 50 cents.

Actual results are not expected to be released until next week, along with most of the other money-center banks.

J.P. Morgan & Co., though, is scheduled to report its results this Thursday, putting it in the position of being a bellwether for the group.

The general consensus is that Morgan and other big New York banks will report unusually robust trading results for the third quarter - generally a relatively quiet trading period - but not as strong as the second quarter.

"If Morgan's trading results blow out the second quarter, that could be a catalyst for people to sit up and take notice," said Judah Kraushaar at Merrill Lynch & Co.

At the same time, though, shares of money-center stocks appreciated quite a bit in the past 90 days, and they could be due for a fall.

"I wouldn't be surprised to see some selling into strong earnings on the part of money-centers," said Robert Bonelli, executive director of Ernst Financial Group in New York.

The one possible exception is Chemical, which hasn't moved up as much as the other money centers, he added.

Regionals Seen Advancing

Mr. Bonelli said his portfolio is now heavily weighted toward regional bank stocks, which he said have been flat as a group since June.

"As they announce [third-quarter results], I think the market will take them up," he added.

Some of Mr. Bonelli's favorites are Comerica, Society Corp., Amsouth Bancorp. and Southern National Corp.

Several southeastern banks are expected to report earnings Tuesday, including Sun Trust Banks.

A 'Managed Pace'

While it's fairly well recognized that regionals have been experiencing a decline in their net interest margins, the erosion has been taking place at a "managed pace," said Mr. Kraushaar at Merrill.

One potential negative surprise for the group would be if margins soften even more than expected.

"As margins compress, we obviously need loan growth to make up the difference," said Sam Marchese, investment manager for SIFE Trust Fund in Walnut Creek, Calif.

But loan growth remains spotty, varying region by region, and even state by state, he noted.

Loan growth is generally strongest in the Southeast and Midwest.

"I don't expect any meaningful loan growth in the New York banks, and loans should continue to decline in California," said Raphael Soifer at Brown Brothers Harriman & Co.

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