Some of the hardest-hit bank stocks in this year's downturn have been those of midcapitalization companies that are perceived as high-quality names.

While the Standard and Poor's bank stock index has fallen 14% this year, stocks of several solid performers are down even more. Milwaukee-based Firstar Corp. has fallen 27%; Comerica Inc. 29%; First Tennessee National Corp. 26%; Fifth Third Bancorp 16%; Zions Bancorp 16%; and BB&T Corp. 23%.

These midcap banks had one thing in common: higher price-to-earnings ratios than most of their peers. Stocks with higher P/Es tend to fall more than other stocks with lower multiples.

Gerard M. Cronin, an analyst at KeyCorp's McDonald Investments unit in Cleveland, said that among 40 Midwest and Southeast banks his firm covers there has been a tendency for investors to emphasize value over reputation. He said that as a result, "On an absolute and relative basis the value in the group is now actually with the high-performing companies."

The drops certainly can be explained. For example, Firstar's acquisition of Mercantile Bancorp and Zions' purchase of rival First Security Corp. dragged down their prices, mainly because investors questioned their ability to integrate the acquired companies.

All of the high performers have been damaged by several factors that have sent bank stocks to their lowest level in a year. Those factors include rising interest rates and fears of more surprise earnings downgrades. Consequently, high-flying bank P/Es have suffered. Zions, with a P/E of more than 30 in April, has a multiple now hovering around 22. Memphis-based First Tennessee's P/E has dropped to 16, from 26 in May. Detroit-based Comerica's P/E has fallen to 12.5, from 19 in March.

"It's interesting that this downdraft has compressed the multiples of the really well-managed banks more so than the not-so-well-run banks," said one Wall Street analyst. "The elite banks have gotten savaged the worst."

Not that it has been good news for any bank. "It has been a merciless year," Mr. Cronin said. "Money is still flowing out of our group, and I don't know what is going to change it." But "whenever the group has a spark of life, it is going to be your high-performing names that are going to lead to high valuations."

On Wednesday, bank stocks finished up a tad after a herky-jerky trading day. The Standard and Poor's bank stock index rose 1.58 points, or 0.3%, to 573.84; the Dow Jones industrial average fell 74.4 points, or 0.7%, to 10,524.07.

Like all bank stocks, large capitalization equities were mixed. Citigroup rose 12.5 cents, or 0.3%, to $42.875, while Chase Manhattan Corp. increased 56.25 cents, or 0.7%, to $76.50. Meanwhile, Bank of America Corp. fell 87.5 cents, or 1.6%, to $53.50; J.P. Morgan & Co. fell 87.50 cents, or 0.7%, to 117.4375; and Bank One Corp. dropped 12.5 cents, or 0.4%, to $35.625.


BLOOMFIELD HILLS, Mich. -- Flagstar Bancorp said Wednesday that lower mortgage banking earnings will hurt its results for the third quarter and the year.

Shares of the $3.7 billion-asset thrift holding company fell 62.5 cents, to $16.25, Wednesday morning on word that its earnings per share would miss analysts' consensus of 78 to 84 cents for this quarter and $3.18 to $3.25 for the year.

Flagstar said rising interest rates caused it to lose $3.8 million on the sale of newly originated mortgage loans in the secondary market. Mortgage loan volume will be about 23% less than in the second quarter. Flagstar also said its board authorized the repurchase of up to $15 million of its common stock to take advantage of its current price.

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