A vote of confidence from an influential analyst did little to lift bank stocks Monday, as jitters about overseas economies continued to rule the American market.
After a five-week slide led by banking stocks, analyst Robert Albertson of Goldman, Sachs & Co. said in a conference call to clients that investors have overreacted to concerns about how the Asian economic crisis would affect bank earnings.
Bank stocks have reached bargain prices, he said, singling out Chase Manhattan Corp. as an "extraordinary opportunity."
Investors initially seemed to heed Mr. Albertson's analysis. Chase shares rose $1 and Citicorp nearly $2 in early trading.
But these and other banking companies proved unable to hold most of their gains. Chase finished the day at $64.0625, up 37.5 cents, and Citicorp fell 81.25 cents, to $133.50. The Standard & Poor's bank index rose a modest 0.36%, compared to 0.39% for the Dow Jones industrial average.
Mr. Albertson did not return phone calls.
Christine Callies, market strategist at Credit Suisse First Boston, said the flat yield curve in the United States and concern about debt defaults abroad have prompted "a reality check in financial services."
The selloff has hit money-centers and regional banks alike, puzzling analysts who a few months ago were pitching the companies as safe harbors, thanks to forecasts of strong earnings that have mostly come true.
So far investors have demonstrated that bank earnings are subordinate as a concern to what's going on in Russia or the possibility that the economic crisis in Asia will spread to Latin America.
"There are fears in the market that we had not anticipated," said Lawrence Cohn, a banking analyst at Ryan, Beck & Co., Livingston, N.J. Concerns about Asia, which surfaced last fall, have lasted longer and grown deeper than initially expected, he said.
No longer do investors worry so much about large debt defaults or big trading losses, he said. Rather, investors are starting to ask how the worldwide stock market declines will affect bank revenues derived from capital markets and equity investments.
"The worries are not just about trading risk now but capital markets risk," Mr. Cohn said. "There is the feeling that venture capital revenues could fall."
Many big banks have made tens or hundreds of millions of dollars on venture capital investments in the technology companies whose rise helped fuel the recent bull market. But declining stock prices in the tech sector, caused in part by declining demand in Asia, could hurt banks.
Some banks have been warning that venture capital gains could fall.
Norwest Corp. in its annual report forecast "significantly lower earnings" for its venture capital unit in 1998. In the second quarter Norwest reported $53.2 million of venture capital revenues, compared with $93.3 million a year earlier.
Chase Manhattan, however, reported $370 million of second-quarter revenues from "equity-related investments," a 93% increase from the second quarter of 1997.
Fleet Financial Group's second-quarter capital markets revenue was $107 million, compared with $65 million a year earlier. It said $29 million of the quarter's capital markets revenues came from venture capital activities.
In addition to declines in venture capital, analysts expect bond underwriting-a big business for banks-to drop substantially because investors are showing an overwhelming preference for government debt over corporate paper. The market for initial public offerings has also been depressed for some time.
"The fundamentals have been changing for a while," said Richard X. Bove, bank analyst at Raymond James & Associates. "The world is getting tougher."
Nevertheless, some analysts continue to believe that banks are big enough and diverse enough to maintain profits despite the world's economic gyrations. And eventually, they said, investors should recognize this.
"We still think stable earnings will win out," Mr. Cohn said.
