Earnings concerns continued to weigh on bank and thrift stocks Tuesday, with Interwest Bancorp the latest to be downgraded.
Analyst Joseph K. Morford 3d of BT Alex. Brown Inc. said he lowered his rating on Interwest to "market perform" from "buy" because a competitive lending market and costs associated with the company's shift toward business lending are expected to slow earnings.
Shares of Interwest, a $2.1 billion-asset thrift based in Oak Harbor, Wash., fell $2.125 to $41.125, on a day when bank stocks were sluggish. The stock had hit a 52-week high of $43.25 Monday. Interwest's recent $14.7 million deal to acquire Puget Sound Bancorp was "a big price to pay" for a bank with only $50 million of assets, he said. Merger targets in Washington will continue to be expensive, he predicted.
Along with his rating cut, Mr. Morford sliced his 1997 earnings estimate to $2.45 per share, from $2.50, and his 1998 estimate to $2.70, from $3.
BT Alex. Brown's move was in contrast to its past strong backing for Interwest. The firm has been "the leading bull" on Interwest stock, said James R. Bradshaw, senior vice president of research for Pacific Crest Securities Inc. "They were really pounding the table on it."
H. Glenn Mouw, Interwest's chief financial officer, attributed the stock's Tuesday drop to the downgrade. However, he said, Mr. Morford had not criticized the thrift's strategy.
"They are not saying they are not our supporter anymore," Mr. Mouw said. "They are saying that the pain of going through this strategy in the short term will have an impact on earnings momentum. That is a fair statement."
Mr. Bradshaw, who already has a "market perform" rating on the stock for valuation reasons, said Interwest is "one of the few thrifts around the West that has done a very good job of migrating from a traditional thrift to a commercial bank."
Meanwhile, banks stocks cooled Tuesday after a strong performance a day earlier. The Standard & Poor's bank index fell 0.47%, but the Nasdaq bank index rose 0.34%. The Dow Jones industrial average fell 0.33% and the S&P 500 fell 0.37%.
Norwest Corp.'s board declared a 2-for-1 stock split in the form of a 100% stock dividend payable Oct. 10 to stockholders of record on Oct. 2. Minneapolis-based Norwest has about 375 million shares of common stock outstanding.
The American Stock Exchange began trading the common stock of Bar Harbor Bankshares, the holding company for Bar Harbor Banking and Trust Co., based in Maine.
Shares in an initial public offering of First International Bancorp, Hartford, Conn., surged 27% at opening, trading as high as $17.25 early Tuesday. First International closed at $16.125.
