The widespread expectation of a Friday cut in short-term rates has failed to stir interest in bank stocks so far.
Many economists are convinced that September employment data to be released that day will be bad enough to force the Federal Reserve again to cut the discount rate and its target for the federal funds rate. Both rates are now 3%. But bank stocks, which began a long climb after the Fed eased last Dec. 20. seem to have become immune to Fed actions.
"People are jaded at this point." said Richard Stillinger of Keefe, Bruyette & Woods Inc.
Among money-center stocks late Tuesday. J.P. Morgan & Co. was down 37.5 cents a share, to $62.25, and Citicorp rose 25 cents, to $15.875.
Regionals also performed listlessly. Nationsbank Corp. rose 25 cents a share, to $43.875, while NBD Bancorp lost 25 cents, to $29. Among over-the-counter stocks. Boatmen's Bancshares rose 37.5 cents, to $51.625. and Northern Trust Co. fell the same amount, to $58.125.
Bank stock analysts said a rate cut would put political pressure on banks to reduce their prime rate, now 6%. This would offset lower funding costs made possible by the easing.
"There is a concern that rates can only go down so far." moreover, said Henry C. Dickson of Kemper Securities Group Inc.
Concern About Profit Fuel
In addition, bank stocks would lose appeal if investors viewed a rate cut as a sign of continued weakness in loan demand. "It seems like investors are trying to figure out how banks are going to sustain earnings," Mr. Dickson said.
Others said low rates already may be factored into bank share prices.
"My sense would be that we got a big kick [from a rate cut] in December of last year, we got a little boost in July, [but] I would not expect a big play in bank stocks" from a rate cut now, said John D. Leonard, bank analyst at Salomon Brothers Inc. "I think most of us would much rather have a little stronger economy."
While bank analysts generally agreed a rate cut would have a short-term positive effect on bank net interest margins, no consensus exists on which banks are in the best position to benefit.
Speculation on Beneficiaries
Ronald 1. Mandle, bank analyst at Sanford C. Bernstein & Co., said beneficiaries of lower rates would include trading specialists such as Bankers Trust New York Corp. and J.P. Morgan, as well as banks with large bond holdings. such as Fleet Financial Group, Nationsbank, and First Union Corp. "Otherwise, it depends on what the bank can do with deposit rates." he said.
Mr. Dickson of Kemper Securities said consumer-oriented banks, which tend to have the higher-yielding assets, are in the best position to benefit.
And Nancy A. Bush of Brown Brothers Harriman & Co., said those in the best position are money-center banks and "hybrid regionals" such as Bank of Boston Corp., which depend on major wholesale funding. This type of funding drops faster in cost with Fed easings than do consumer deposits.
Mr. Mandle, however, said banks have proved willing to cut deposit rates as fast as they cut the prime rate, despite skepticism after the last Fed rate cut. As a result, margins will be "flat to up" in the third quarter, he said.
Dennis F. Shea of Morgan Stanley & Co. agreed. "What it would do is reinforce opinions that margins will contract gradually," he said. Banks can continue to do well in the absence of loan demand, he added, because of wide spreads and declining credit-quality problems.
Skeptical on Rate Cut Prospect
Ms. Bush, meanwhile, was skeptical that the Fed would cut rates, arguing that it is too late, in any event, to stimulate the economy in time for the presidential election. In some states, such as Florida, where a large percentage of personal income derives from dividends and other rate-sensitive investments, a rate cut could actually hurt the economy, she said.
Lawrence W. Cohn of PaineWebber Inc. also was skeptical. "At these low levels," he said, "25 or 50 basis points makes no difference."