Bank investors have spoken, and what they want in 2001, more than anything else, is change.

The dismal performance of bank stocks and the overall stock market this year sometimes made it seem as though everything that could have gone wrong did.

Is this fair? Wasn’t 2000 the year in which the market sweated bullets anticipating an economywide downturn triggered by credit-quality catastrophes and an overall credit crunch — events that never materialized? Hasn’t the U.S. budget surplus continued to surpass expectations? And hasn’t this helped keep intermediate and long-term rates low, despite the damage the Fed’s work on short-term rates did to banks’ margins?

Clearly, there’s a disconnect of perspective — one that has gone on longer than just a year — that’s worth exploring.

“If banks are in such good shape, why have their stock prices fallen for most of the last two and a half years?” asks Goldman Sachs economist Jan Hatzius. The fact is, “investors are mainly concerned with the change in credit quality and financial condition,” while economists and regulators are focused on the absolute level of financial health, he said.

The charts for many regional bank stocks illustrate Mr. Hatzius’ point. Far more than their larger and often more diverse big-bank brethren, regionals suffered through a grinding reduction in net interest rate margins. Many remained quite profitable, but the stock market clipped their values, in many cases by about half, to account for the reduced expectations.

Wall Street is spending the better part of this autumn reevaluating the group. The annual investor conference season has drawn dozens of regional bank executives to New York, with the next group due to tell their stories at an event planned by Ryan, Beck & Co. for Tuesday.

Based on presentations at a recent conference held by UBS Warburg, there is reason to hope that much of the bad news, on margins at least, may have passed. Robert Patten, an analyst at UBS Warburg, said many of the 18 bank managements appearing said they believed a trough had already been reached.

Portfolio restructurings at regionals like BB&T Corp., National City Corp., and Regions Financial Corp., for example, could begin to offset net interest margin deterioration this quarter and next, perhaps setting the stage for healthier profitability, he said.

Still, Mr. Patten remains reluctant to recommend the group. Though the degree of damage from margin pressures has lessened, he said, the group remains “revenue challenged, and credit quality still sits like a haze over the group.”

An exception might be Commerce Bancorp in Cherry Hill, N.J. Shares of Commerce, which has made a mission out of creating a high-touch service environment in its branches, have steadily climbed throughout the year.

One problem the bank has not had to worry about is deposit growth.

Commerce has added $3.4 billion of deposits between 1991 and 1999 in New Jersey markets, a time when First Union Corp. lost $7.2 billion in the same market, Mr. Patten said. Commerce has already set its sights on local rival Summit Bancorp’s deposit base, given FleetBoston Financial Corp.’s pending deal to acquire Summit.

But Commerce is a unique case, Mr. Patten said. Many other regional banks with quality loan prospects waiting for funds are likely to find themselves strapped on the deposit side in the coming year, he said. That appears to be pushing several managements to “tilt incentive plans toward deposit generation for employees.”

Bank investors, like most, also had relished the idea of a divided government, the better to curb the possibility of too-ambitious spending or tax-cut plans that might erode the U.S. government’s debt reduction efforts.

Here, the reality may prove to be too much of a good thing.

The tumult in markets since the presidential election moved from toss-up to tug-of-war has introduced a whole new element of risk in the market’s view.

Mr. Hatzius now sees a protracted battle for the White House as far more threatening than a victory by Vice President Al Gore or Texas Gov. George W. Bush. “If we see a crisis that causes the equity market to sell off, then we might have to adjust” our GDP growth forecast downward.

Neither a Bush nor a Gore presidency would cause him to reconsider Goldman’s current 3.3% GDP growth projection for next year, he said.

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