Last week's striking selloff of bank stocks left industry watchers sharpening pencils and poring over balance sheets with a vigor not seen in years.
"All of a sudden we're forced to be analysts again," said one veteran research chief.
For three years, virtually every bank stock soared, buoyed by a raging bull market and talk of takeovers.
Now, tumult in Asia and dramatic interest rate shifts have dampened investors' ardor for financial institution stocks. And growing concerns and expenses to prepare computer systems for the new millennium may hamper merger momentum.
Until recently, "the market was totally indiscriminate," said Frank J. Barkocy of Josephthal & Co.
"It painted every financial institution with the same brush." Now, he said, "you're going to really have to be selective."
"Fundamentals" will be the buzzword 1998, he and other analysts say.
They expect to pay especially close attention to quality of assets, capital, cost-cutting efforts, earnings, management, and systems at the institutions they follow.
These efforts have been made all along, but take on added importance in today's shakier market.
For Mr. Barkocy, BankBoston Corp., First Union Corp., and KeyCorp outpace others. Another top selection, SunTrust Banks, "is one of the best- run banks in the country," Mr. Barkocy said.
Bear, Stearns & Co. analyst Sean J. Ryan also likes SunTrust and sees Regions Financial as a good pick for 1998. He said the southeastern regional institution is one of the most efficient in the business.
Mr. Ryan also says new chief executive Carl Jones, a quality-control expert, is moving "to address shortcomings in technology and fee revenues."
The savings and loan industry faces its own challenges, exacerbated by recent interest rate movements that thwart mortgage profits.
Bruce Harting of Shearson Lehman Brothers Inc. downgraded 11 thrifts last week. But he spared GreenPoint Financial, People's Heritage, Sovereign Bancorp, and Washington Mutual-reiterating "buy" recommendations. Shares of those four institutions are less vulnerable than those of their peers, Mr. Harting said.
Concerns about interest rates are not confined to bank and thrift stocks.
Real estate investment trusts that invest in mortgage securities have also been hammered by prepayment fears.
But there is a gem in this group, said Bear Stearns analysts. Laser Mortgage Management, unlike most mortgage REITs, invests in fixed-rate mortgages that have much less chance of paying early, said analyst Craig A. Peckham.
He and colleague Michael K. Diana rated the company a "buy," saying concerns about Laser are misplaced.