Fueled by Merger Mania, Banks Lead the Market

Banking stocks rallied broadly again Tuesday, still propelled by the announced merger of Bank-America Corp. and Security Pacific Corp.

Bank stocks not only extended their rally a second day but led the market as the Dow Jones industrial average surged 25 points in midafternoon trading.

BankAmerica's stock was up $3.125, to $43.125. The rise, on top of a $2.625 gain Monday, was a sign that Wall Street thinks BankAmerica is acquiring Security Pacific for a relatively cheap price. Usually, the stock of an acquiring bank falls after an merger announcement.

Security Pacific was up $3.625, to $35.75. Its stock has gained 35.5% since the announcement.

California Rivals Gain

The stock of the partners' two biggest rivals - Wells Fargo & Co. and First Interstate - continued to rise on takeover speculation.

Wells' shares were up $2.25, to $77.75, while First Interstate gained $2.375, to $36.25. Analysts have speculated widely that the two companies might now go to the altar.

But the speculation about Wells also has centered on acquisitions of healthy banks to the north and east of California. As a result U.S. Bancorp, in Portland, Ore., had gained 10.5% since the close of trading Friday, while Valley National Corp. in Phoenix, rose 5.13%, to $27.

Indeed, on the second day of the latest round of merger mania, price gains began to accelerate among banks in other parts of the country that were regarded as likely to benefit from a partnership with neighbors.

In Other Regions

Among Midwest banks, Society Bancorp was up $2.5, Tuesday, to $51.25, while Manufacturers National Corp. rose $1.675, to $69, late in the afternoon. Also gaining on merger talk were Bank of Boston, up nearly 10%, to $11.375, while the presumed target, Shawmut National Corp., gained 3.3%, to $8.875, since the BankAmerica deal was announced.

In the Southeast, some investors were betting that Barnett Banks could become an acquisition candidate, driving its share up $1.875, to $36.

A note of caution distinguished this rally from others that have been founded on merger speculation, however. Some analysts cautioned against investing solely in the acquisition targets, whose shares could be expected to jump with an announcement, saying risk of picking the wrong companies is too great.

Fear of Being Left Behind

That's because companies that fail to find a partner before the wave of consolidation ends will face big disadvantages as their competitors shed assets and employees, hurting real estate collateral values and the economy.

Apparently as a result of that fear, a number of seemingly likely candidates to be acquired merely kept pace with the market.

"The really sensible thing to do is see where they've got a good franchise and good management," said John Mason, the bank analyst at Interstate Johnson Lane.

Indeed, Mr. Mason and other investment advisers were more inclined to tout a potential buyer than seller, as investors sought consolidation opportunities.

That's apparently because "it's the buyers who would benefit from the cost cutting," said Virginia A. Adair, analyst for Merrill Lynch.

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