Investors still giddy from last week's $80 billion Citicorp-Travelers Group deal swooped down on bank, brokerage, and thrift stocks Monday, on news of two major bank deals.
NationsBank Corp. and BankAmerica Corp. announced they would combine in an estimated $70 billion transaction, and Banc One Corp. said it would acquire First Chicago NBD Corp. for about $30 billion in stock.
The surge in financial stocks marked a new level of frenzy in the market. Usually, the shares of the acquirer go down and those of the target go up on the day of a deal announcement. On Monday-as with last week's announcement-investors made little differentiation.
NationsBank's shares shot up $4.4375, to $80.875 on six times average daily volume, while BankAmerica's rose $4.5625, to $91.125 on four times daily volume. Banc One's shares were unchanged at $61.75 after trading as high as $64.9375, and First Chicago's climbed $2.25, to $96.25. Adding fuel to the fire were analysts who upgraded all four banks and potential takeout candidates in droves.
One sign that many investors have jumped into the sector for a quick profit is that Citicorp and Travelers shares-which surged substantially the day they announced their deal-dropped as investors scrambled to get to a piece of the new deal. Citicorp fell an even $3, to $162.625, while Travelers dropped 81.25 cents, to $66.50.
"It's hot money chasing a new merger" said Scott Edgar, head of research at Sife Trust Fund.
"I'm not complaining, but this market is kind of frustrating for fundamental investors," Mr. Edgar said. "The stocks are not trading on fundamentals, they are trading on merger news."
Although the bond market slumped, the Standard & Poor's bank index surged 2.95%, while the Nasdaq bank index swelled 1.39%. The Dow Jones industrial average rose 0.19%, bolstered in part by the $7.0625 surge in J.P. Morgan & Co., to $147.625. Morgan is one of the 30 components of the index. The S&P 500 fell 0.09%.
Shares of financial companies considered most likely to be taken over gained substantially. They included Merrill Lynch & Co., which has been rumored to be in talks with Chase Manhattan Corp., up $3.9375, to $98.875; Wells Fargo & Co., up $18.8125, to $370.9375; and Donaldson, Lufkin & Jenrette, up $7.375, to $101.25.
Some market experts warned that the euphoria in the market was overdone.
"This is a truly weird day," said bank analyst Lawrence Cohn of Ryan, Beck & Co., Livingston, N.J. "The bond market is down, which is when financial services get killed, yet market enthusiasm is so overwhelming, you are having big moves in the bank stocks."
Jeffrey Miller, who heads up the Arcadia Fund, a financial hedge vehicle, agreed. "Investors are just jumping on the consolidation train. The Banc One-First Chicago deal makes sense because there is the overlap with credit cards, but the Citicorp-Travelers" does not, Mr. Jacobs said. "Citicorp's strength is in its consumer and retail banking business. This deal only makes sense for corporate banking, which is not as profitable."
Bank analyst Eric E. Rothmann of Stephen & Co., of Little Rock, Ark., said the climb in bank stocks is healthy.
"Bank stocks have really performed as well as other sector stocks in the last year," Mr. Rothmann said. "These acquisitions have recharged the market."