Thrift stocks are booming on the prospect that mergers with banks will become more frequent in the aftermath of new federal legislation on savings and loan deposit insurance, analysts said.
The legislation, which reduced the premium for thrift deposit insurance to just 6.4 basis points per $100 of covered deposits, from 23 to 26 basis points, will make thrifts more "banklike," said industry observers. Banks' premiums have been at zero, giving them a big cost edge over thrifts.
In the latest sign of Wall Street's new enthusiasm, analyst E. Gareth Plank of the UBS Securities unit of Union Bank of Switzerland upgraded his investment ratings Thursday on Washington Mutual Inc., Seattle, and Standard Federal Savings, Troy, Mich. - to "buy" from "hold."
Washington Mutual shares were unchanged Thursday at $38.625, while thrift stocks continued to outpace the market. Standard Federal's shares declined 50 cents, to $46.75
Mr. Plank cited both fundamentally strong balance sheets and the thrifts' management teams, plus the likelihood that they are apt to attract merger suitors because of their already banklike cultures.
"Thrifts are getting to a very level playing field with banks," said analyst Thomas Theurkauf of Keefe, Bruyette & Woods Inc. "That will foster a lot of bank and thrift activity in the years to come."
Analyst Janet McCabe of Legg Mason Wood Walker Inc., who downgraded Standard Federal Wednesday to "hold" from "buy" because of its recent price appreciation, said she expects takeover activity as early as this year.
"The recent insurance recapitalization and lower interest rates have removed the uncertainty from banks regarding acquiring thrifts," she said. "You will see more bank-thrift mergers being announced now because banks know what they are dealing with."
In general, however, Mr. Plank said he thinks banks are still unlikely to acquire thrifts because the culture remains different.
The deposit insurance legislation "will be accretive to Washington Mutual's earnings by as much as a dime," said Mr. Plank, who increased his 1996 earnings estimate to $3.85 per share. He raised his 1997 estimate on Standard Federal to $5.50, from $4.85.
Despite its recent strong run, Mr. Plank said, he thinks "significant upside remains" in Washington Mutual's stock. His target price for the company is $44. He said the Seattle thrift is a good bet even if it is a buyer rather than a seller, noting that it is one of the most cost- efficient acquirers in the industry.
The Nasdaq bank index - which is dominated by thrifts - set a new high as it rose 0.30%, while the Standard & Poor's bank index gained 0.01%. The Dow Jones industrial average fell 0.02%, and the S&P 500 index also slipped 0.18%.
Aames Financial Corp. stock rose 9.7% Thursday on four times its average trading volume. The Los Angeles mortgage banking firm declined to comment on its stock activity. Its share price climbed $5.125, to $58.