Rising Stock Prices, New Offerings Boost Market Value of Top 50 Banks
Rising stock prices and a flurry of equity issues have enabled the nation's top 50 banking companies to regain the market value they lost during last year's bear market.
The market capitalization of the 50 banks increased by 8% in the second quarter, according to data compiled by SNL Securities. That's on top of a 27% gain in the first quarter.
The total market value of the 50 companies at midyear stood at $117.1 billion, $7.1 billion higher than at the end of 1989.
So far this year, the banks have gained $31.7 billion in market value.
Trend Seen Continuing
And with takeover fever pushing bank stocks up now, the growth in market capitalization is likely to continue.
"I think there are still a lot of investors out there dying to play the merger-consolidation game, and they're going to bid up the bank stocks," said one capital markets specialist.
Market capitalization - the value of its stock multiplied by the number of outstanding shares - is a key measure of a company's financial muscle. A large market value makes it easier to acquire competitors - and harder to be acquired.
As bank stock prices rose in the second quarter, so did market values. The American Banker index of bank stocks stood at 114 at the end of the second quarter, up from 107.5 at the end of March and 86.5 at the end of 1990.
Common Stock Issues
Market values were also pushed up by stock offerings. The banking industry issued a total of $1.1 billion in common stock in the quarter, up from $950 million in the first quarter, according to Securities Data Co.
The surge in stock offerings was attributed to favorable market conditions and the need to increase capital-to-asset ratios.
Regulators are focusing more closely than ever on bank's capital adequacy, and acquisition-hungry banks are eager to please officials who have the power to sign off on deals they wish to complete.
"Anybody who wants to be in the acquisition mode over time has got to get high capital ratios," said one investment banker.
The leader in market capitalization growth, Ameritrust Corp., saw its market capitalization rise 59.5%. The Cleveland bank is the target of a bid by National City Corp., a fact that surfaced during the second quarter and drove up its stock price.
Firstar Is No. 2
The second-biggest gainer, Milwaukee's Firstar Corp., issued new shares. That bank, whose market capitalization increased 53%, bought Banks of Iowa and exchanged new shares worth $7.8 million for the target bank's equity, according to Benjamin Crabtree, an analyst at Dain Bosworth.
Similarly, Mellon Bank Corp., the third-biggest gainer, issued $133.8 million in new equity during the second quarter, and its market capitalization increased 28.9%.
Money-center banks led the pack of market capitalization losers. Manufacturers Hanover Corp. lost more market capitalization than any other large bank, and Bank of New York Corp. saw the third-biggest drop.
Investors were bearish on the prospects for many money-center banks in the second quarter, anticipating anemic earnings. In addition, the second-quarter figures do not reflect stock price gains since Manufacturers Hanover Corp. and Chemical Banking Corp. announced on July 15 that they would merge.
"As of June 30, there was more pessimism out there about the outlook for New York banks than the second-quarter results actually warranted," said Raphael Soifer.
Some Command a Premium
Investors continue to pay up for banks emphasizing fee-based businesses and holding high-quality assets.
MBNA Corp., the credit card bank spun off from troubled MNC Financial Inc. in January, boasted the highest market-capitalization-to-assets ratio of any bank at the end of the second quarter. But Fifth Third Bancorp. and Wilmington Trust Co., both banks involved in fee-based businesses, were close behind.
In contrast, money-centers' assets are worth less, dollar for dollar, to investors. Chase Manhattan Corp. and Citicorp finished the second quarter with the lowest market-capitalization-to-assets ratios of the top 50 banks.
J.P. Morgan & Co. remained in the No. 1 spot in terms of overall market capitalization, followed by BankAmerica Corp. and Banc One Corp. [Tabular Data Omitted]
PHOTO : Winners and Losers in Market Value Source: SNL Securities