There are signs that bank stocks are nearing a post-earnings equilibrium, after dropping 6% in the past month.
"The group has still been under attack in recent days, but we are beginning to see some signs of stabilization," said Frank J. Barkocy, a managing director of Advest Inc., Hartford, Conn.
For example, the American Banker index of 225 banks was up 0.2% last Thursday, the first time in several days that it showed an uptick (for the five trading days ending Thursday, the index was down nearly 2%). While the gain was small, to some analysts it indicates that the selloff may be abating.
Friday, the major bank stocks were mixed, with mostly fractional price changes. Losers out-numbered gainers. NBD Bancorp's shares were down 50 cents to $31.375, and MBNA's shares fell 25 cents to $34.
The Dow Jones industrial average was off 7.27 to 3,680.59. The bond market was off, sending the 30-year yield to 5.95%.
"I think this coming week is the turning point and we will be shifting out the post-earnings selloff mode," said Bradford M. Johnson of Sterne, Agee & Leach Inc., Birmingham, Ala.
Well Behind the Market
The selloff that accompanied third-quarter earnings report has put the sector's gains this year well behind the broader market.
The American Banker index of 225 banks was ahead 6.25% as of last Thursday, while the Standard & Poors 500 index was up 7.35% and the Dow Jones industrial average up 11.72%.
Even if the selloff is over, said Mark Alpert of Alex. Brown & Sons Inc., large gains matching those in some periods over the past three years are not expected - at least for large regional and superregional banks.
The analyst is unsure what new events could reignite the stocks for gains beyond the overall market in the near future.
"Revenue growth must replace declining credit and operating expenses as the impetus to higher earnings" he said.
|Easy Money Has Been Made'
And while there are some "pockets of loan growth" around, "many banks will not find sufficient volume to offset negative pricing as historically wide spreads diminish," he said.
"The easy money has been made," said Mr. Barkocy. "I don't look for a major spiking up from here, but I expect rebuilding in a number of issues."
The bright spot is smaller-capitalization banks. Many of these stocks have not been hurt much if at all during the recent selloff.
Still Holding Up Well
Mr. Alpert noted that Alex. Brown's community bank index of 25 banks with market capitalizations from $200 million to $1 billion is beating the market. It was up 19% for the year as of Wednesday.
Community bank shares have also held up well recently, despite the declines at larger banks. Shares of Baltimore Bancorp., for instance, were up 3% in the five trading days ended Thursday. Those of Dauphin Deposit Corp., Harrisburg, Pa., were unchanged.
By contrast, shares of widely traded Wells Fargo & Co., San Francisco, slumped 6.4% during the same period.
Late Friday Wells Fargo was down 37.5 cents to $110.875, Baltimore was up 12.5 cents to $12.75 and Dauphin was down 25 cents to $24.50.
Mr. Alpert noted that the smaller bank stocks have not been the focus of momentum-oriented investors, because such investors need the liquidity of the larger stocks in order to buy and sell easily.