The market value of the nation's 100 largest banking companies soared 50.6% last year, capping a spectacular three-year jump in capitalization for the industry leaders.
The impressive 1997 increase came on top of gains of 45.5% in 1996 and 52.7% in 1995. At yearend, the aggregate capitalization of the top 100 banks was an unprecedented $851 billion.
But several major banks slipped in value during the fourth quarter, reflecting the concerns of investors about exposure to the financial crisis spreading across Asia.
Shares of Citicorp slipped 5.6% in the fourth quarter. Still, it remained by far the largest bank in market capitalization, with a yearend value of $57.9 billion.
"Asia is a real event," said Robert A. Bonelli, manager of the Ernst Bank Equity Fund, who expects a sizable first-quarter stock market correction. That could produce the first dip in banks' market value since 1994.
"This is the first time in this decade I've been less than completely bullish on banks," said Mr. Bonelli, whose fund was up 43.2% in value last year. After selling all his bank stocks and converting his fund to all-cash status in December, Mr. Bonelli awaits "better investor sentiment" before returning to the market.
A former commercial banker, Mr. Bonelli attributed the huge three-year run in bank market valuation to several major factors.
"No. 1, the composition of banks' revenues has changed tremendously," he said. "Banks used to get 80% to 85% of their revenues from interest income. Today they get 60% to 65% of revenues from fee-based sources.
"No. 2, banks' product lines have been significantly enhanced," he noted. "Investment and financial services that years ago were considered to have nothing to do with banking are now sold by banks.
"No. 3, the industry's asset quality and its management of asset quality has changed dramatically. In my opinion, banks actually learned from the bad experience of 1989 and 1990," he said.
At the same time these fundamental changes were under way, banks' management were changing. "Bank managers have learned to think outside the box," Mr. Bonelli said, "and that has translated into real earnings gains equal to or better than the Standard & Poor's 500."
And last, but hardly least, the consolidation of the industry has gathered momentum, he noted, "and some of the acquisition premiums over the past few years appear not to have been misguided."
Mr. Bonelli thinks bank stocks and hence their market value could begin moving up again in the second half of the year after the impact of events in Asia becomes clearer and two quarters of 1998 industry earnings are in the books.
Behind Citicorp as the second-largest bank in market capital was BankAmerica Corp., with yearend value of $50.9 billion. Moving into third place was NationsBank Corp., with yearend value of $47.5 billion.
Dropping to fourth was Chase Manhattan Corp., at $46 billion, after a 7.8% drop in value during the fourth quarter. Moving to fifth place from sixth was First Union Corp., at $32.5 billion. Slipping to sixth was Banc One Corp., with a yearend capitalization of $31.8 billion, after easing 2.4% in the final quarter.
The biggest gainer in value during the quarter was Deposit Guaranty Corp., Jackson, Miss., up 75.3%, to $2.4 billion. It agreed to be bought by First Tennessee Corp.
The biggest market-value loser in the quarter was Bankers Trust New York Corp., down 8.8%, to a yearend value of $11.6 billion.
The top 100 banks in market capitalization is a group that changes with mergers and valuation shifts in the industry.