Bank stocks ended the day higher after an unusually fidgety trading session, as investors tried to decide whether share prices fully reflect banks' exposure to global economic problems.
"At this point a certain amount of caution is not unwarranted," R. Harold Schroeder, banking analyst at Keefe, Bruyette & Woods, New York, said early in the day, when global banks were taking a beating. "As we come to the end of the year, people want to protect their gains and are also uneasy about what's happening overseas."
Chase Manhattan Corp. set the tone for money-center banks early in the day by reporting steep trading losses tied to overseas activities. Shares of Chase rose at first, then dropped more than $2 before finishing the day up 50 cents, to $107.25.
The company said its October trading revenue loss of $160 million before taxes resulted from "unusually volatile and adverse trading markets." Sharp price declines and a loss of liquidity in certain securities, particularly those in emerging markets, contributed to the downturn, a spokesman said.
Investors responded by driving down shares at other banks-like J.P. Morgan & Co.-with overseas trading operations. These stocks rebounded briefly late in the morning, when Federal Reserve Board Chairman Alan Greenspan said overseas turbulence would have minimal impact on the economy.
But the central bank chief's comments before the House Banking Committee were tinged with caution about corporate earnings, sending stocks lower again.
Bank shares resumed their climb in late trading. BankAmerica closed up $1.50, to $71.375. Bankers Trust gained $2.375, to $112.50. Citicorp shares rose $1.875, to $118.25. And J.P. Morgan was up $1.25 to $110.625.
Analysts offered mixed reactions to the Chase announcement. Joel Silverstein of Prudential Securities reaffirmed his "buy" recommendation. "The bulk of adjustment has been made," he said. "Most of earnings growth for 1998 will come from core domestic consumer and wholesale operations."
"Anyone who's involved in this type of trading" is vulnerable, he added.
Meanwhile Salomon Brothers analyst Diane Glossman cut her earnings estimates for Chase but said other institutions will skirt similar problems. "We believe that the severity of this situation will prove to be specific to Chase rather than impacting each of the major dealer banks," she said.
Moreover, overseas volatility has already been factored into major banks' share prices, some market watchers said.
The Standard & Poor's bank index rose 1.18%, while the Dow Jones industrial average rose 1.04%. The S&P 500 was up 1.18%. The Nasdaq index of banks fell 0.28%.
First Union Corp. and Signet Banking both rose on shareholder approval of their merger. First Union, which would become the biggest bank in Virginia through the purchase, rose $1.6875, to $50.625. Signet, whose shareholders will get 1.10 shares of First Union for each of their shares, was up $1, to $55. The deal is expected to close this month.