Kevin C. Pilot has spent the last six years profiting from bank stocks.

He made a mint after scooping up the badly hammered shares of Citicorp in 1991. He hit pay dirt by betting that California thrift stocks would surge because of a series of favorable goodwill lawsuits.

But lately, bank stocks have begun to lose their luster for Mr. Pilot, who heads up investment advisory firm Phoenix Capital Management in Carlsbad, Calif.

"It's been a great ride," said Mr. Pilot. "But I'm getting out of bank stocks."

Such talk has been akin to heresy amid conventional wisdom that bank stocks are some of the cheapest stocks around. The Standard & Poor's bank index has yet to recover from its plunge of two weeks ago, which means bargains to many soothsayers on the Street.

Mr. Pilot, however, has made his fortune going against the grain-he took a position in Valujet (now Airtran) shortly after one of their planes crashed in the Florida Everglades-and he does not subscribe to the conventional wisdom.

He is not alone. A growing number of sophisticated investors have been quietly reducing their positions in bank stocks, suggesting that the days of easy profits in the sector could be numbered.

"When sophisticated investors start to exit a sector that means they see something that little investors don't see," said consultant Perrin Long who has spent years analyzing bank stocks. "How long will the economy be good? How long will interest rates stay down? They may be thinking 'not long.'"

Indeed. Mr. Pilot has been shaving his positions in banks and thrifts for the last two months. He expects to be out of the sector by the end of the month.

"It's not like the industry is heading for trouble, it's a matter of valuations," argued Mr. Pilot. "Just 18 months ago you could find great banks at 1.5 times book, now they are trading at 4. It's just getting too expensive."

Much of the priceyness in bank stocks has to do with investors speculating about mergers, added Mr. Pilot. Low interest rates will not last forever.

"We have been fed this belief by the Street that banks are not sensitive to interest rates, but when rates go up banks will suffer."

Famed value investor Michael Price-who is noted for leveraging the Chemical and Chase Manhattan Corp. merger and who recently launched a financial services fund-has been echoing similar sentiments.

According to one observer, Mr. Price says bank stock prices have gotten out of hand and bank mergers with them.

"Valuations are not cheap in general," said Raymond Garea, Mr. Price's fund manager. "There are a lot of names where everyone has priced consolidation into the stock. Those are banks that we don't want to own."

Orin Kramer, who heads up one of the country's biggest financial hedge funds, has also turned decidedly bearish on banks - particularly the largest ones. In the last several months, Mr. Kramer has liquidated his positions in several large banks and invested in specialty finance companies, like Phoenix-based Ugly Duckling Corp., as well as auto lenders, subprime mortgage lenders, and card companies.

"We own less depository institutions today then we have had at any point in the past five-plus years," Mr. Kramer said. "Whether that is the correct judgment, we will see. The valuations are obviously a lot less compelling then they have been in quite some time."

Large banks have never been favorites of famed investor Ralph Wanger, who heads up Wanger Assets Management. Now they are even less so, said the company's bank analyst Robert Mohn.

"We have been trimming a couple of names and not adding any banks," said Mr. Mohn, who recently sold off his shares in Banc One Corp. "A lot of these banks are acting like bank nirvana will last for a long, long time to come," said Mr. Mohn.

"Just talk to bank managements and you'll hear, 'If we do our job and grow our earnings, you make 15%. And if we mess up and losses tick up, you'll still make money because some large bank will swoop down and acquire us.'"

"We don't believe in the free lunch theory here," he said.

Meanwhile, Mr. Pilot said that his exit out of bank stocks doesn't mean that he'll stay out forever. "I am a bottoms-up kind of manager," Mr. Pilot said. "If something presents itself in the sector, I won't exclude it."

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