J.P. Morgan Securities Inc. has added Boatmen's Bancshares to its coverage list with a "buy" rating, saying the bank could benefit from the expected rash of mergers in its home state of Missouri.
"Even though Boatmen's may not sell or be taken out, we think the stock will move up nicely because of its franchise" in the state, Morgan's senior analyst Catherine L. Murray said Wednesday. She set a 12-month price target of $34 to $36 on the stock, which closed at tktk up tktk.
Analysts say Missouri banks, which operate under unusually restrictive rules for out-of-state affiliations, will attract a slew of merger proposals once interstate branching takes effect.
Ms. Murray predicted that the first significant Missouri takeover will occur in 12 to 18 months, and said she expects Boatmen's stock to gain 5% to 10% once a deal is announced.
In a report on the Missouri market, Ms. Murray said Magna Group and Mark Twain Bancshares could be swallowed in the first wave of Missouri mergers, "based on their relatively smaller size."
In the near term, Ms. Murray said Boatmen's probably will focus on acquisitions of its own in nearby markets. She said acquistions, notably the purchase of National Mortgage for $153 million, have served to make the company's franchise more attractive, and that there has been little dilution of share value as a result of the deals.
Ms. Murray said she expects Boatmen's and Mercantile Bancorp., its crosstown rival in St. Louis, to be sold in a second wave of Missouri acquisitions in 18 to 24 months.
"If earnings growth is much slower than expected, (Boatmen's) may consider looking for a partner earlier," she wrote. "It seems unlikely that (Boatmen's) will enter into a merger of equals."
Ms. Murray declined to identify potential buyers, but other analysts have mentioned First Bank System Inc. and Banc One Corp. as possible suitors. Norwest Corp. also is thought to be interested in the Missouri market.
Strong family ownership of Commerce Bancshares and UMB Financial, two other large Missouri banks, could work against a sale, she said.
And, with respect to an acquisition of Boatmen's, she warned that factors such as a decline in share prices could derail acquisitions.
Bank shares rose and fell along with the bond market on a roller-coaster day in the financial markets Wednesday.
The bulls reigned briefly at the beginning of trading, as investors apparently took heart from Tuesday's decision by the Federal Reserve not to raise short-term rates. That, coupled with news that new home sales had declined 14% in February, fueled hopes that the economy has slowed and that the Fed will not raise rates in the near future.
The rally lost steam later in the day, however, as nervous investors took advantage of profit opportunities by selling bonds and then stocks. George Salem, an analyst at Gerard Klauer Mattison, said the downturn in bonds and bank stocks coincided with a poor auction of five-year notes.
Citicorp shares fell 75 cents to $43.625, and First Interstate Bancorp slipped 62.5 cents to $78.875.
Gainers included NationsBank Corp., up 62.5 to $50.875, and Barnett Banks Inc., up 62.5 cents to $45.625.