Bank stocks slipped another notch Thursday as investor worries deepened and analysts cut investment ratings on several high-profile banks.
Fears are focused on the prospect that "margins will be squeezed" by falling interest rates and the effect of Asia's financial troubles on the U.S. economy, said analyst Donald J. Kauth of BT Alex. Brown & Co.
Moreover, he said, banks may be faced with making larger loan-loss provisions in 1998, which would eat into earnings.
Thursday's biggest decliner among major banks, Wells Fargo & Co., dropped $12.75, to $302.9375, after losing $14.0625 on Wednesday. The two- day 10% decline is the market's way of signaling its displeasure with the company's lackluster results, market watchers said.
"The fourth quarter was worse than uneventful," because deposits fell after analysts had been reassured they would pick up, said analyst George M. Salem of Gerard Klauer Mattison & Co.
Thursday's selling was broad, as investors hunkered down for what is shaping up as a challenging year. Indeed, banks and thrifts will face an inevitable slowdown in their earnings growth, said Mr. Kauth.
For the day, the Standard & Poor's bank index fell 1.14% and the Dow Jones industrial average lost 0.81%. The Nasdaq bank index dipped 0.39% and the S&P 500 shed 0.79%.
Sovereign Bancorp fell 87.5 cents, to $18.625, after Mr. Kauth downgraded it to "market perform" from "buy." He said he expects residential mortgage prepayments to reduce internal revenue growth over the next few months.
First Chicago NBD Corp. lost $1.6875, to $73.75, after a downgrade to "market perform" from "buy" by Thomas K. Brown of Donaldson, Lufkin & Jenrette, who also cited a slowdown in growth. Mr. Brown added that "the company's efficiency gains and share repurchase abilities" were not as robust as initially expected.
First Chicago still retains some enthusiastic fans, including Credit Suisse First Boston. In maintaining a "strong buy," analyst Michael Mayo said the share price "relative to the value of the component businesses is one of the cheapest in the industry."
First Security Corp. fell $1, to $34.25, after a downgrade to "outperform" from "buy" by Michael Plodwick of Lehman Brothers.
The downgrades followed similar moves on Wednesday for banks such as J.P. Morgan & Co.
Keefe, Bruyette & Woods research director David Berry cut his rating to "underperform" from "market perform" after Morgan disclosed that $587 million, or 10%, of loans in Asia, were being reserved against for possible losses. On Thursday the shares regained some ground, rising $1.25, to $102.625, after a $3.75 drop on Wednesday.
And Centura Banks rose 12.5 cents, to $69.1875, despite a cut to "neutral" from "outperform" by Edward R. Najarian of Wheat First Butcher Singer.