While bank stocks continued to fall on Wednesday, analysts were beginning to zero in on a select few that continue to offer investment opportunities.
"We are still facing a lot of liquidity in the market, and it has to go somewhere," said analyst Nancy Bush, of Brown Brothers Harriman & Co. She argued that bargain seekers still find banks more attractive than other industries.
NationsBank Corp. continues to be reasonably valued because its price- to-earnings multiple is only 62% of that of the average stock, Ms. Bush said, adding that banks on average trade at a 68% relative multiple to the rest of the market.
Bank of Boston, another stock Ms. Bush favors, trades at a 65% relative multiple.
Investors have yet to gain from NationsBank's deal for Boatmen's Bancshares and Bank of Boston's acquisition of Baybanks, she said. "We expect consolidation to be a big part of the story" in 1997, said Ms. Bush.
Analyst Robert Albertson of Goldman Sachs & Co. recommended Citicorp, even though he acknowledged that banks are suffering from a substantial slowdown in revenues.
"It may sound contradictory but even at $100 Citicorp still sells at a discount," he said.
Mr. Albertson said that the company trades at a multiple of 11.6 times earnings, while other banks trade at 12.6 times. Mr. Albertson said the money-center bank also offers what other banks do not: revenue growth.
Analyst Michael Mayo of Lehman Brothers Inc. recommended smaller banks, such as First Commerce Corp. in New Orleans and Crestar Financial Corp. of Richmond.
"Both of these companies trade well below the group valuation," said Mr. Mayo, noting that the average bank multiple at Lehman is 11.7 times earnings.
Frank Barkocy at Josephthal Lyon & Ross Inc. finds discounts in the small to midsize banks.
He said that Hubco Inc., a New Jersey thrift company, trades at 10 times estimated 1997 earnings, while other companies in his banking universe trade at a 10.5 multiple.
Mr Barkocy expects Hubco's stock to appreciate 20% in the next year because "it has improving earnings, solid assets and strong geographic positioning, as well as cross-selling opportunities."
Thomas Finucane, assistant portfolio manager at John Hancock funds in Boston, said there are no bargains in the banking sector. However, he finds First Tennessee National Corp. attractive because it is an "above average bank" with average multiple.
Mr. Finucane said that First Tennessee obtains half of its revenue from fee-based businesses, yet has not yet attained the high multiple of similar banks such as State Street Boston,
In Wednesday trading, Bankers Trust New York Corp. stock fell $2.50 to $81.875 on a Wall Street Journal report that company executives have filed plans to sell close to 300,000 shares of its $80.27 million issues outstanding.
Salomon Brothers Inc., adding several thrifts to its coverage list, assigned "buy" ratings to Charter One Financial Corp. and Washington Mutual Savings and placed "hold" ratings on H.F. Ahmanson & Co., Great Western Financial Corp. and Dime Bancorp.
Merrill Lynch downgraded Charter One to "neutral" from "accumulate."