Banks stocks had a good start early Monday but fizzled.
The disappointing showing, particularly among stocks of regional banks, puzzled traders, because large acquisition deals usually lift all boats. On Sunday, Capital One Financial Corp. announced plans to buy Hibernia Corp. of New Orleans for $5.3 billion in cash and stock.
"I thought we'd get a little more reaction," said Michael O'Boyle, a bank stock trader at First Horizon National Corp.'s FTN Midwest Research Securities Corp. in Nashville.
Capital One, of McLean, Va. finally made its move after indicating more than a year that it wanted to buy a bank. Despite much talk about how expensive regional banks have gotten in the past year, Capital One is paying a 24% premium over Hibernia's closing price Friday. Hibernia's shares jumped 21.3% on Monday, while Capital One' fell 2.8%.
Mr. O'Boyle said he was particularly surprised that banks with operations in Texas didn't get more of a pop. Compass Bancshares Inc. of Birmingham, Ala., was among the top gainers, but its 2% rise was not much to write home about. One of Hibernia's attractions was its presence in Texas, Capital One said.
Andrew B. Collins and Ben B. Crabtree of Piper Jaffray & Co. said in a report issued late Monday, "We view the acquisition announcement as a positive for Texas banks in general, as in our assessment it reaffirms the attractiveness of the high-growth Texas marketplace."
The American Banker index of 225 banks fell 0.1%, after a 0.6% gain at noon. Large banks did better; the index of the top 50 rose 0.3%, like the Standard & Poor's 500.
Commerce Bancorp Inc. of Cherry Hill, N.J., was also among the top gainers, rising 2%. Analyst Jacqueline Reeves of BankAtlantic Bancorp's Ryan Beck & Co. upgraded the stock to "outperform" from "market perform." She said in a research note that she felt more comfortable that the company is getting over the legal troubles of two of its executives, who have been tied to a corruption case in Philadelphia.
Shares of Main Street Banks Inc. meanwhile fell 7.8%. For the first time the Kennesaw, Ga., company gave earnings guidance to analysts and investors -- only to put a damper on Wall Street's expectations.
