In a startling replay of last summer's slide, bank stocks plunged Wednesday as an economic crisis in Brazil unnerved world financial markets.
Shares of some of the nation's biggest banking companies started the session nearly 10% lower in value. They regained a considerable part of the lost ground, but price volatility was the order of the day.
Not surprisingly, banking companies with the strongest links to Latin America were hit hardest, with Citigroup down $3.5625, to $52.1875, and J.P. Morgan & Co. $5.25, to $106.5625.
Leading securities firms also took substantial hits. Lehman Brothers fell $3.4375, to $48.5625; Merrill Lynch & Co. $4.125, to $68.875; and Donaldson, Lufkin & Jenrette Securities Corp. $2.0625, to $42.625.
BankBoston Corp., which has long garnered a significant slice of income from Latin America, opened lower, but then reversed direction for a gain of 56.25 cents, to $38.25, after issuing an upbeat assessment.
"We remain confident in our near-term performance in Brazil, and our outlook for the remainder of the year continues to be positive," the company said in a statement.
Selling during the morning trading session was extensive as investors feared an economic unraveling in Latin America that could set off a broader financial crisis.
The Standard & Poor's bank index fell 1% and the Nasdaq bank index 0.9%. That was against the backdrop of a 125.12-point fall in the Dow Jones industrial average, to 9,349.56 and a 0.4% drop in the S&P 500 stock index.
Events were triggered by the announcement, reported at 4:30 a.m. New York time, that Brazilian Central Bank president Gustavo Franco was resigning. European markets reacted sharply, and the concerns quickly spread to New York.
But by afternoon, many bank stocks had managed to snap back from early losses. That included companies whose business links to South America are minimal.
For instance, First Union Corp. fell 6.025 cents, to $62.4375, and Bank One Corp. added 87.5 cents, to $54.75.
But if the final damage was limited, Wednesday's wild ride for stocks left veteran market watchers uneasy.
"I wouldn't call this a disaster, but we have to monitor the situation," said Edward Nadjarian, a banking industry analyst at Wheat First Union. "A lot depends on how Brazil works its way out of this."
Wall Street professionals are hoping Brazil can steer through its monetary troubles. The country's currency, interest rates, and securities prices were all viewed as vulnerable.
"Brazil has been looked at as the stronghold in Latin America, and now it's viewed as a weaker region," said Anastasia Carroll, a director at A.T. Kearney, a consulting firm. "The country must prove it is a significant and strong force in the region.
Brazil will likely "look to some of their neighboring countries such as Argentina and Chile to help reinforce the perception that the region as a whole will be solvent," Ms. Carroll said.
"In a market like this, investors should stick with fundamentals," emphasized Felice Gelman, an analyst and portfolio manager with Keefe Managers Inc., New York.
Financial institutions should be seen as safe bets, Ms. Gelman said. "There will be some house cleaning in the fourth quarter but we see good asset quality and loan growth going forward."
Indeed, for those bold enough to make purchases, "This could be a real buying opportunity for bank stocks," Mr. Nadjarian said. "I would tell investors to focus on higher quality, regional bank stocks with no direct exposure to Brazil."
He cited Fleet Financial Group in Boston, which he said has "real good earnings clarity for 1999 and with very minimal foreign exposure."
Investors should not be put off by fears that Fleet's trading arm will suffer in a bearish stock market, Mr. Nadjarian said. "The profitability of the Quick & Reilly division is much more dependent on volume rather than market prices."
Mellon Bank Corp. also offers opportunity, the analyst said.
The Pittsburgh banking company "has a heavy weighting of revenue on the trust and asset management sides," Mr. Nadjarian said. "The company will produce 12% to 14% earnings per share growth in 1999 or will be under some pressure to be acquired."