Bank stocks continued their slide Monday, with indexes hitting their lowest levels in 11 months.
The Standard & Poor's bank stock index fell 0.8%, to 604.75, the lowest level since Oct. 28, when it stood at 594.59. The Nasdaq bank stock index dropped 0.6%, to 1,712.33, the lowest level since Oct. 15, when it closed at 1,688.63. On Monday, 28 of the 31 banks in the S&P bank index were down.
"Same old/same old stuff," said David Ellison, who manages two financial funds for FBR Fund Advisors, a division of Friedman, Billings, Ramsey & Co., Boston. "There's really nothing fundamentally different in the companies."
Stocks traded on very low volume Monday, said Adam Lewis, senior vice president and trader at Keefe, Bruyette & Woods Inc. in New York. All eyes were waiting for the U.S. Labor Department's consumer price index, which is to be announced Wednesday.
Hurting bank stocks were falling prices of 30-year Treasury bonds, whose yield climbed 1 basis point, to 6.05%. Also, the dollar fell further, down 2.01 yen, to 106.71. A falling dollar makes foreign goods more expensive and stimulates exports, which could be harbingers of inflation, putting more pressure on the Federal Reserve to raise rates.
Interest rate fears have dogged bank stocks since the May CPI. There has been little merger and acquisition activity to boost prices, and with escalating concern about credit quality, investors have found little reason to hold bank equities.
The Standard & Poor's bank stock index has lost 17.2% since its April high; the Nasdaq bank index has lost 9.7%.
"There's just no catalyst to get the group going," said Gerard Cronin, an analyst for McDonald Investments in Cleveland. "It is quite an ugly scenario for financial stocks."
Rather than homing in on company basics, investors are just heading for the door, observers say.
Money flowing out of financial mutual funds is bringing the group down, Mr. Ellison said. "Flows are driving the boat right now."
Mutual fund redemptions have contributed to the 7.7% drop this year in Mr. Ellison's FBR Financial Services fund, which invests mainly in thrifts with market capitalizations in the large-to-midsize range.
"The bottom will come when there is no money left," Mr. Ellison said. "It won't come because the stocks are cheap."
Despite such gloom, Mr. Ellison sees bright spots. The trick, he said, is finding "boring" companies, those with an easily understood business plan with little potential for surprises. Small capitalization stocks are one possibility FBR's small-cap financial fund is up 2.6% for the year.
Moreover, Mr. Ellison trumpets thrifts as an attractive alternative to the money centers. Big banks, he said, are dependent on foreign trading operations, venture capital divisions, and advisory fees and are less likely to deliver consistent earnings over the long haul than thrifts or regional banks. Moveover, big bank stocks tend to be more expensive, with price-to-earnings ratios in the low- to mid-teens, compared with 10 or less for thrifts.
Earnings surprises also have been plaguing bank stocks. Last week, Carla D'Arista, an analyst for Friedman Billings Ramsey in Arlington, Va., revised her 1999 earnings estimates for Chase Manhattan Bank, to $1.25 a share, down from $1.31. In August, Bank One Corp. blindsided Wall Street by revising earnings downward by about 8% for the year, prompting a 23% decline in the stock in one day.
Those announcements leave investors wondering who is next. Throw in concerns about year-2000 compliance, and the market has all the coziness of a bear's den.
"There is a lot of small negative things floating around," Mr. Cronin said. "That's enough to keep the group out of favor.
"You just have to ride it out," he said. "Hopefully the third quarter will be stronger than people thought."
In Monday trading, the only big banks that showed gains were New York's Chase Manhattan Corp. and San Francisco's Wells Fargo & Co.
Chase, which dropped sharply last week, rose 25 cents, or 0.3%, to $77.6875. Wells rose 12.5 cents, or 0.3%, to $40.
Most giant banks were off: Bank of America Corp. fell 12.5 cents, or 0.2%, to $59.1875; Bank One Corp. dropped 50 cents, or 1.3%, to $37.6875; and J.P. Morgan & Co. $3.25, or 2.5%, to $124.8125.