The market value of the 100 top banks fell $7.1 billion, or 2.6%, in the second quarter, the first such drop since the third quarter on 1992.
First Boston Corp. said the decline is the steepest since the $11 billion drop in the last quarter of 1987, when the stock market crashed.
The market value of the 100 largest banks totaled $271.1 billion, versus $278.1 billion in the first quarter, according to SNL Securities. The 100 banks were ranked by market value.
Market value is a company's stock price multiplied by its shares outstanding. It represents a reliable gauge of a company's market strength and ability to acquire others.
The drop in the second quarter reflects the fall in bank stock prices in the period. The American Banker index, a weighted average of 225 bank stock, lost 2.9% in the quarter.
The dearth of new common stock offerings was another factor in the decline. among the major institutions, only Chase Manhattan Corp. issued common stock in the period. Chase's market value expanded 7.3%, to $5.9 billion, because of the offering.
Investors began to worry about rising inflation in mid-April and immediately began to sell off bank stocks. They thought rising inflation would cause higher short-term interest rates, which would drive up banks' costs of funds and hurt earnings. By early June, bank shares had fallen an average 15% during the quarter.
The fears abated in mid-June, and the stocks rallied about 12% in three weeks. Thus, the see-saw in share prices resulted in only a slight drop in market value by the quarter's end.
B of A, NationsBank Lost Big
A sizable portion of the drop came from losses at BankAmerica Corp. and NationsBank Corp.
BankAmerica, which has the biggest market value in the industry, lost $1.7 billion, or 10%, of its value.
To put its loss in perspective, the value wiped out is more than the market value of Integra Financial Corp., Pittsburgh, at the end of last quarter,
NationsBank's market value plunged $1.27 billion, or 9.2%, to $12.6 billion.
The loss pulled the bank down two notches to fourth place in the market-capitalization rankings. Banc One Corp. moved up one notch to second, while J.P. Morgan & Co. rose one notch to third.
Analysts said they were not worried about the size of the fall in market values at individual banks.
"To gain or lose $1 billion in market cap for the biggest banks is not significant," said Dennis Shea, an analyst with Morgan Stanley & Co.
Over the past six quarters, the market value of the top 100 banks has fallen into a pattern of rising significantly for two quarters, then dropping slightly for a quarter. This trend of two steps forward. one step back, is largely a product of share prices, which never rise in a straight line, analysts said.
"A one-quarter dip doesn't mean much," said Ronald I. Mandle, an analyst with Sanford C. Bernstein & Co.
Analysts said the important point is the gain in market value during the past 18 months.
In that time, the market value of the top 100 banks has risen $100 billion, or 58%.
The biggest gains have come for the biggest banks.
"Over time, the market value of the top 25 banks has increased significantly," said Mr. Shea. "The big keep getting bigger."
In the two previous quarters combined, market capitalization for the top 100 banks rose 34%. Some of that increase came from banks issuing shares to raise equity. The rest came from soaring share prices.