Banks stocks are due to lose some altitude and begin underperforming the market, according to a veteran analyst.
There is not enough fear of international problems built into share prices, said George M. Salem of Gerard Klauer Mattison & Co. "We're only seeing the beginning of impact."
On Friday, bank stocks rose modestly in tandem with other equities in a volatile session on fears about continuing economic problems in Japan.
For the day, Bankers Trust was up $1, to $119.875, Chase Manhattan Corp. rose 87.5 cents, to $113.25, Citicorp was down 12.5 cents, to $126.875, and Wells Fargo & Co. increased by $4.50, to $300.375.
The Standard & Poor's bank index rose 0.15%, and the Dow Jones industrial average was up 0.70%. The Nasdaq bank index was up 0.04%, and the S&P 500 increased 0.44%.
The activity capped a week in which shares had slowly recovered from the market's precipitous slide two weeks ago. But investors were warned not to become complacent.
Caution is still the byword concerning bank stocks, Mr. Salem said. He said share prices are rising "while reality and fundamentals are getting worse."
Southeast Asia, as well as Latin America, are too entwined with U.S. financial institutions for further hits to be ruled out, he said. "Brazil is a huge wild card in this" because of the potential for peso devaluation.
Mr. Salem also expects a widening rift between shares of regional banks and money-centers. Only "the more attractive regionals" will outperform the market while most of the group and virtually all money-centers will lag, he said.
At early afternoon Friday, bank shares were still ahead of broader markets. The Dow Jones industrial average was up 0.23%, while a composite of money-centers was up 1.5% and regionals were up 0.75%.
Mr. Salem likes Norwest Corp. among regionals because the Minnesota company "has a growth rate that is highly predictable and highly credible."
He also said NationsBank Corp., now lagging the market, is well positioned with its coming purchase of Barnett Banks Inc. "They will meet their objectives and erase any dilution" in just over a year, he said. The merger "represents an excellent opportunity for the institution to grow at 12% to 14% annually."
Investors continued reacting to merger news. NationsBank rose 75 cents, to $62.1875, and Barnett was up 87.5 cents, to $72.50.
First Union fell 87.5 cents, to $48.75, and its purchase target, CoreStates Financial, fell 25 cents, to $77.6875.
Moody's Investors Service and Standard & Poor's put First Union and CoreStates debt ratings under review for possible upgrade following their deal announcement last week.
The credit analysis firms noted revenue opportunities and cost savings resulting from the combination.
Investment banks' debt departments are also looking favorably at the combination.
"We will likely upgrade First Union ourselves upon completion of the merger," said analyst Andrew Gilligan of Bear, Stearns & Co.
In addition to cost savings, the merger reinforces that "consolidation remains a strong, credit-positive factor in the banking industry," Mr. Gilligan said.