Outlook for California Depends on the Forecaster
Wall Street analysts are sharply divided about the outlook for California's economy and the state's major banks.
Some analysts expect the state's historic growth pattern to resume soon. Others are far more cautious and think the risk has not been fully recognized by investors.
"A long era of growth and prosperity has ended in California," asserted George M. Salem, banking industry analyst at Prudential Securities Inc., New York. He said he discovered "deeper economic problems than expected" on a recent trip to the West Coast.
But John J. Mason, bank analyst in Atlanta for Interstate/ Johnson Lane, has just returned from a similar trip.
The state's economy is unlikely to suffer a long-term setback, he said, and current problems are exaggerated by East Coast observers.
Wells Takes a Jump
Share prices of the major California banking companies - BankAmerica Corp. and Wells Fargo & Co., both based in San Francisco, and First Interstate Bancorp, Los Angeles - have slipped in the past month, along with other bank stocks, as nervousness about the nation's economy has persisted.
But Tuesday, shares of Wells Fargo, based in San Francisco, jumped $5, to $72.125, despite the company's announcement that it was again significantly increasing its loan-loss provision.
"After anticipating the absolute worst for a month, the report wasn't all bad, and that prompted a rebound," said Carole Berger of C.J. Lawrence Inc., who noted that the bank is taking a conservative approach.
Other Shares Rise, Too
Analysts said similar action probably pushed up shares of the other large institutions.
BankAmerica rose $1.625 a share, to $41.75, while the stock of Security Pacific Corp., Los Angeles, BankAmerica's merger partner, gained $1.50, to $32.625. First Interstate Bancorp rose $1.875, to $30.125.
Mr. Salem of Prudential said he has concluded that California's economy - a huge slice of the nation's total - is in "a worse recession than the rest of the country and is likely to continue to lag through 1992 - at least."
That would be the worst relative economic performance for California since the recession of 1957-58. For the last three decades, California has usually led the country in economic growth.
|Material Downside Risk'
Wells Fargo has "the most to lose," Mr. Salem said, since most of its loans are in California and 60% are in real estate. He has a "sell" rating on the stock, believing it carriers "material downside risk."
Mr. Mason of Interstate/ Johnson has focused his optimistic assessment on BankAmerica, which he said will gain, through the Security Pacific merger, a dominant share of California banking "and will be almost twice as large in fast-growing Southern California as before."
Major banking stocks soared, although profit-taking moderated gains in late trading.
"Investors are discounting another cut in interest rates and think credit problems at a number of banks have reached their peak," said Livia S. Asher of Merrill Lynch Capital Markets. Pittsburgh's PNC Financial Corp. rose $2.50, to $43.25, and Manufacturers Hanover Corp., was up $1.875 to $29.25.
PHOTO : Consensus Waffles On California Banks