Bank stocks rebounded Wednesday after Federal Reserve Chairman Alan Greenspan told the Senate Banking Committee the Fed understood the economy is going through a "significant soft patch."
The market reacted favorably to the testimony, which implied the Fed is still considering a further interest rate cut.
These remarks were interpreted differently from his Tuesday testimony to a subcommittee of the House Banking Committee that the economy was "on track."
The stock and bond markets fell into a tailspin Tuesday, reflecting doubts among investors who had been anticipating further rate cuts. It was the fourth consecutive trading day of decline.
The Standard & Poor's index of major-bank stocks, which are perceived to benefit from lower interest rates, rose 2.17% Wednesday. The S&P 500 index rose 1.16%.
"Bank stocks are doing well today because the market in general is doing well, which is recognizing that yesterday's selloff was a little steeper than merited by the speech by Greenspan," a fund manager said Wednesday.
Michael Stead, the SIFE Trust Fund manager, added, referring to Mr. Greenspan: "He is on again today, and he is singing a slightly different tune."
Chase Manhattan Corp. shares rose $2.75, to $71.25, after Merrill Lynch & Co. named the stock one of its top picks of the week. Chemical Banking Corp., which is to acquire Chase this quarter but will keep the Chase name, rose $2.50, to $69.25.
Merrill analyst Judah Kraushaar raised his price target for the new Chase from the low $90s to $100 per share by the end of 1997.
He reiterated his "buy" rating on Chase and maintained his bullish $7.20 earnings per share estimate for this year. The consensus among analysts is $6.73 per share, according to First Call Corp.
Chase has a late March analyst meeting scheduled at which Mr. Kraushaar expects the bank to raise its merger cost savings estimate by 10%, to $1.65 billion.
"The company is poised for multiyear earnings surprises, which will be driven by deeper than expected share repurchases and higher than expected expense restraints," he said. "Even revenues will surprise."
Chase should earn roughly $2 billion in excess capital over the next two years, he said, much of which could be expelled through share repurchases. At current prices, a $2 billion share repurchase would buy back more than 29 million shares.
Several banks announced share repurchases Wednesday. First Union Corp. said it would buy back 15 million shares, or 5% of its total outstanding. In 1995, the company bought back 20 million shares. First Union's stock finished up 25 cents, at $40.375.
Westamerica Bancorp., San Rafael, Calif., said it would buy back 500,000 shares, or 5% of its total common stock outstanding. The stock finished up 87.5 cents, at $45.875.
Valley National Bancorp, Wayne, N.J., said it would buy back 1 million of its shares, or 3% of its total outstanding. The stock finished down 12.5 cents, at $24.50.
And First Bank System Inc. said it would repurchase up to 25 million shares through the end of 1997. The effect of the new program is to increase previous repurchase authorizations by 13 million shares, or 9% of the roughly 144 million shares outstanding at Feb. 20. The bank also boosted its quarterly dividend by 14%, to 41.25 cents.
Also Wednesday, Oppenheimer & Co. upgraded Bank of Boston Corp. to "buy" from "market perform." The stock finished down 25 cents, at $47.75. The Oppenheimer analyst did not return calls seeking comment.