It was SouthTrust Corp.'s turn on Monday, as investors continued to flee bank stocks.
Shares of the Birmingham, Ala., company fell 5% to $25.9375, a drop that reflects a malaise in the market that has sent the American Banker index of the top 225 banks to its lowest point since Oct. 14, 1998. The Standard & Poor's bank index, including 29 large banks, was at its lowest point since May 1997, off 1.8% on Monday.
Market watchers said they could not blame any particular incident for SouthTrust's drop. They said the stock has been hurt by concern over margin compression, credit quality, credibility with Wall Street, and lack of interest of mid-capitalization stocks by investors - problems that have plagued many bank stocks.
Since SouthTrust reported earnings last month, its stock has fallen 16%. As interest rates rose, its net interest margin in the fourth quarter fell to 3.63%, from 3.76% in the third quarter.
But looming even larger in the eyes of investors is concern over credit quality. SouthTrust's net chargeoffs as a percentage of overall loans jumped 8 basis points, to 0.37% of assets in the quarter.
More importantly to investors, SouthTrust's nonperforming loans have declined while other Birmingham banks such as Amsouth Bancorp. and Regions Financial Corp, reported increases in the fourth quarter. That has led to worry that SouthTrust may be overdue to report a jump in nonperformers. Commercial loans make up about two-thirds of SouthTrust's portfolio, a proportion that creates a perception of risk.
"Banks unfortunately tend to be painted with the same brush," said Gerard M. Cronin, an analyst with McDonald Investments in Cleveland. "If three of the four banks have credit issues, the reasoning goes: SouthTrust is next."
SouthTrust declined to comment for this article, but analysts said it has a good track record of controlling credit quality.
Stocks of regional banks such as SouthTrust are suffering more than their bigger brethren. Investors who have stayed with bank stocks have gravitated to the large banks whose stocks are relatively liquid, said Frank Barkocy, a principal at Keefe Managers Inc.
The sour market for financial stocks has led Keefe to take a 50% cash position, while investing the other half in stocks such as Citigroup Inc., Chase Manhattan Corp., and FleetBoston Financial Corp.
"Our feeling is the group will be relatively sloppy until we see a change in the mind-set of expectations," Mr. Barkocy said. "In the interim we feel that that when the group does turn, the rally will probably come from the large cap, more liquid names."
SouthTrust, like most banks, is also on the losing end of a popularity contest. The bank's operating income of $2.64 a share in 1999, was up 18% over 1998 - good enough to attract growth investors. Since earnings expectations have been ratcheted down to the 8% to 10% range, growth investors are looking elsewhere, said Marni Pont O'Doherty, an analyst at Keefe, Bruyette & Woods Inc., which is not affiliated with Keefe Managers.
"Growth momentum investors might be wondering whether this fits their investment objective," Ms. O'Doherty said.
Banks as a whole have not endeared themselves to Wall Street either, because a series unwelcome surprises in some banks' earnings reports last year is still fresh in the minds of jittery shareholders.
"Unfortunately, the two things we need to look for are credibility and confidence in the group," said Jacqueline Reeves, an analyst with Putnam, Lovell, de Guardiola & Thornton Inc.
"Until we see a few strong quarterly earnings or maybe pre-releases," Ms. Reeves said, she was hard pressed to see anything that would help banks rally as a group.
"These financials are truly out of favor, and valuations are being thrown out the window right now," said Adam Lewis, a trader at Keefe, Bruyette & Woods.