Thrift stocks, led by Golden West Financial Corp., rallied Tuesday as optimism about the interest rate environment and strong earnings paced the group.
Shares of Golden West, a $42 billion-asset thrift in Oakland, Calif., rose $1.50, or 3.38% to $45.875 in a continuation of gains sparked by its stellar second-quarter earnings, which surprised Wall Street last week by beating analysts' expectations. Other thrifts performed well. Shares of Washington Mutual Inc., rose 68.75 cents, or 2.17% to $32.3125. Greenpoint Financial Corp. was up $1, or 4.57% to $22.875, and FirstFed Financial Corp. gained 37.5 cents, or 2.47% to $15.5625.
Meanwhile American Banker's index of 50 banks rose 0.08%, and its index of 225 bank rose 0.54%.
"A lot of investors feel that thrifts are the way to play the financial sector because they are without asset-quality concerns on the commercial side," said Adam Lewis, vice president and bank stock trader at Keefe, Bruyette & Woods Inc. "And if the Fed is somewhat finished on tightening interest rates, thrift shares will have a tremendous upside."
Many analysts said that Golden West, the third-largest thrift in the United States, is one of the best stories in the group.
"There is a love affair going on with this stock," said Thomas Hain at Lehman Brothers. "They are in a sweet spot right now in the mortgage business, and that is driving extraordinary earnings compared to other thrifts. They are the best ARM lender, and they have superior interest rate management."
Golden West's second-quarter diluted earnings per share rose 17% from a year earlier, to 84 cents, beating the analysts' consensus of 80 cents, according to First Call Thomson.
The company's loan volume grew 98%, to $5.7 billion. In the first half new loan volume rose 91%, to $9.4 billion.
Since its earnings report, Golden West's shares have risen 12%.
"Golden is benefiting from that because of the interest rate environment," said Heather Rosenkoetter, an analyst at Friedman Billings Ramsey of Arlington, Va. Its growth was exceptional, she said.
The company originated a record $2.2 billion of loans in June, up from $900 million in January, Ms. Rosenkoetter said.
Loan volume has climbed because many people are applying for adjustable-rate mortgages, which generally have a lower interest rate than 30-year, fixed-rate loans.