Merger mania is back, but this time the enthusiasm is funneling into investment bank and brokerage stocks.
In trading on Friday, several of these stocks soared on speculation that they would be targeted for acquisition by European or U.S. banks in the new age of financial modernization. Charles Schwab Corp. rose $5.50, or 12%, to $51. Goldman Sachs Group Inc. was up more than $9 at one point, and finished the day up $5.0625, or 4.7%, to $112.25. The two companies were the subject of takeover rumors.
Meanwhile, stock of Chase Manhattan Corp., the subject of incessant rumors that it will be a buyer, fell $2.4375, or 3%, to $78.6875.
The stock movements and high trading volumes were enough to prompt the New York Stock Exchange to ask Schwab, Goldman, and Chase whether there was a reason for the patterns. All declined to comment.
The speculation coincided with the last trading day before the Gramm-Leach-Bliley Act became law on Saturday. The law breaks down the final barriers between banks, brokerages, and foreign banks. It also reclassifies some of the nation's largest commercial and investment banks and brokerages as financial holding companies. The classification will allow them to own a wider range of businesses and make acquisitions without having to notify regulators, making them more agile in the market.
The buzz was heightened by last week's announcement that Deutsche Bank AG would buy Dresdner bank, a deal that would create a company with assets of more than $1.2 trillion.
Investors snatched up brokerage shares with a vengeance, and sold bank stocks. The American Banker index of the top 225 U.S. banks fell 1.9%, to 524.4. Meanwhile, most of the major investment banks and brokerage stocks had healthy gains in the range of 3% to 5%.
With no major economic reports Friday, investors had no catalyst to get them to buy bank stocks, leaving them to ponder the possibility interest rate hikes by the Federal Reserve.
"The overall bank group is back to the same old thing," said Adam Lewis, senior vice president and trader at Keefe, Bruyette & Woods Inc. in New York. "Until investors are convinced the Fed is finished tightening, we will not see money flowing back into the bank group."
If there is any group within the financial sector benefiting from the persistent malaise of traditional banks, it is the investment banks and brokerages.
That group has been perceived as a safe haven of sorts for portfolio managers required to have some weighting in financials. Bank stocks have had a hard time getting out of their funk, primarily because of fears of higher interest rates and a string of earnings disappointments of big banks.
Investment banks and brokerages are perceived to be less sensitive to interest rate hikes because of their potential to capitalize on the craze for technology stocks.
On Friday, shares of Bank One Corp. fell 37.5 cents, or 1.5%, to $24.625. The Chicago company had advised analysts that its first-quarter earnings would be at the low end of their estimates. Joseph Duwan, an analyst at Keefe Bruyette, reduced his earnings estimate for this year by 20 cents, to $2.60.
Mr. Duwan cited concerns over whether Bank One has put its credit card woes behind it, and whether it will complete its systems integration of the former First Chicago NBD Corp. without a hitch. Bank One also faces the same pressures as other Midwestern banks from shrinking interest rate margins.
Though Bank One has said it could meet with earnings expectations of $2.80 to $3 for the year, Mr. Duwan said he "became increasingly uncomfortable that they would meet the estimates."