BankAmerica Jumped to No. 1

The top 100 bank companies in market capitalization saw their value surge by 11.4% in the second quarter, providing additional firepower for acquisitions.

BankAmerica Corp. catapulted to the top spot in the rankings, thanks to its acquisition of Security Pacific Corp. in April. The San Francisco-based company's market capitalization hit $15.2 billion on June 30, an all-time high for a bank.

BankAmerica supplanted NationsBank Corp., which briefly held the No. 1 spot at the beginning of the second quarter.

J.P. Morgan & Co., which led at the end of the first quarter, fell to third place. (See rankings on back page.)

Antidilutive Effect

Market capitalization - the number of shares outstanding multiplied by the stock price - is what separates buyers from sellers. Leaders in market capitalization are able to buy less potent banks for stock without major dilution in earnings per share.

"Market capitalization is a better demonstration of the true size and power of these companies than asset size," said Dennis Shea, an analyst at Morgan Stanley & Co. "The relative difference [in market capitalization] provides an impetus for acquisitions."

According to the American Banker's quarterly survey, the 100 bank companies with the largest market capitalizations had a total value of $209.4 billion at midyear, compared with $188.0 billion at the end of the first quarter. So far this year, market value has risen about 22%.

Banks outperformed the overall stock market. The Standard & Poor's 500 index was essentially flat - rising 1.6% - in the second quarter.

The market capitalization of No. 2 NationsBank at the end of the quarter was $11.5 billion, up 4.7% from the first quarter.

Morgan, which led in 1990 and 1991, lost value in the second quarter because of a 2.6% drop in its stock price. The bank fell to third place, with a value of $10.7 billion, down 2.8% from the first quarter.

Major-League Status

Despite Morgan's drop, the second quarter was the first time a trio of banking companies had market capitalizations exceeding $10 billion, the level that some investors consider the threshold for a giant corporation.

Certainly, the industry has come a long way from the dark days of 1990, when Morgan topped the list with $8 billion and only five banking companies had capitalizations over $3 billion.

Fueling the rise was the continuing rally in bank stocks and $1.4 billion in new common equity.

The industry's gains may bring a new investors. Some big funds, for example, will invest in a company only if they can acquire at least 1% of the shares without causing the stock price to jump. A bank with a market capitalization of, say, $8 billion has a sufficient number of shares outstanding to allow this.

"The liquidity [in shares] of the industry has improved, so it is easier to take medium- to large-size positions in a bank without moving the market," said Tucker Andersen, a managing partner with New York-based Cumberland Associates, fund managers.

Easy Trading

In addition, bigger market capitalization means that the shares are easier to trade, encouraging investors to jump on board because they can sell out within a day or two.

The combination of new equity and investor interest sent the market value of some banks, particularly one-troubled institutions, soaring.

Shawmut National Corp. rose 54%, to $1.7 billion. Rival Bank of Boston Corp. increased its value by 51%, to $2 billion. First Chicago Corp. grew 39%, to $2.8 billion. The gain pushed First Chicago into the top 20, the only major change in the upper echelon.

Shares Sell and High Premium

At yearend 1990, shares of regional and superregional banks sold at less than book value, said Mr. Shea. Now, the market-to-book premium for that group is 154% of book value, a 20-year high, he said.

"The rise in market capitalization shows that investors who put their money where their mouths are were right that the industry is getting healthier," said Ronald I. Mandle, an analyst with Sanford C. Bernstein & Co.

The rising tide, however, didn't lift all boats.

As investors continued to pour money into recovering banks, some of the industry's premier performers experienced small declines in market value.

In addition to Morgan, Fifth Third Bancorp, Cincinnati, and Republic New York Corp. lost ground.


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