With Thanksgiving approaching, Wall Street is finding less and less reason to give thanks.
Financial shares sold off again Friday on lingering anxiety over the outcome of the presidential election and indications that fee-generating businesses that are important to most big banking companies and Wall Street firms stock and bond underwriting and loan syndication have all but dried up for the year. The American Banker index of 225 banks fell 0.8%, and the Dow Jones industrial average fell 0.3%.
Shares of investment banks had the weakest showing, led down by Morgan Stanley Dean Witter & Co., which dropped 3%, to $68.6875. Lehman Brothers shares fell 3%, to $53, and Merrill Lynch & Co. 2.7%, to $64.75.
Commercial banks with big capital markets operations also got caught in the downdraft. Shares of J.P. Morgan & Co. fell 2.5%, to $146.125; Chase Manhattan Corp. 3%, to $39.625; and Bank of America Corp. 3.7%, to $40.3125. Citigroup Inc. dipped slightly, by 1%, to $51.
This is usually the point in the year when business slows down, and it will probably fall off a cliff, said Lawrence Cohn, an analyst at Ryan, Beck & Co. If this keeps up for a few weeks, I wouldnt be surprised to see layoffs.
Some of the slowdown in capital markets activities, particularly in bond underwriting, can be attributed to fears about credit quality. The market for high-yield debt is almost nonexistent, analysts said, as investors stick to investment-grade deals.
The quality of banks loan books was also in the news last week after Bank of America and First Union Corp. disclosed they would have to classify a large credit as nonperforming this quarter. The shares of other regional commercial banks suffered on similar fears, including Comerica Inc., down 3%, to $49.0625, and Fifth Third Bancorp 4%, to $48.0625.
Catherine Murray, an analyst at J.P. Morgan Securities, maintained her buy rating on Detroit-based Comerica and said she was cautiously optimistic about its credit quality. In a research note, Ms. Murray said Comerica had tightened its credit underwriting standards twice since the end of 1998, most recently in June. But Ms. Murray estimated that Comericas loan-loss rate next year will be about 0.4% of loans, higher than the 0.2% to 0.3% the company itself has projected.
Comerica shares may also be feeling the effects of the companys planned purchase of Los Angeles-based Imperial Bancorp, a company known to have more credit-quality problems.
Imperial will take some work on the part of Comerica, Ms. Murray said. Investors will require tangible evidence to be convinced that Comerica can clean up Imperials loan books, and we would expect Comericas stock price to be held back until that evidence is produced.