Investors on Thursday resisted the urge to place bets on which California bank would be the next to go after U.S. Bancorp's deal with Western Bancorp.
A merger announcement typically sends investors scurrying to invest in companies that could be the next takeover targets. But the day after the $958 million merger deal was announced, shares of Newport Beach, Calif.- based Western Bancorp's peers - GBC Bancorp of Los Angeles; City National Corp. of Beverly Hills, and Bank of Hemet in Riverside-either fell or rose modestly, in pace with other bank stocks.
Even U.S. Bancorp's statement that the deal for the $2.5 million-asset company would not be its last in California failed to stir investors, who have been pummelled investing in small banks in the past year.
"Last year small bank stocks were toast," said Charlotte Chamberlain, an analyst with Jefferies & Co. "Nobody wants to jump back into the fire again."
Retail interest in the banking sector has waned considerably, and moved on to other sectors, such as technology, said David Ellison, portfolio manager for FBR Fund Advisors.
"It is the retail guys that drive the rumor mill; it's the retail guys that play the merger wave" Mr. Ellison said. "The fundamentals of small banks are just as good as the bigger banks and in some case better. But if nobody knows about them does anybody care?"
"I was surprised some of the smaller banks did not go up," said Jeffrey Miller, portfolio manager for Acadia Fund. "People are just being irrational. Diamonds are valuable and they are pretty small."
Bigger California banks' stocks, such as Imperial Bancorp of Inglewood and City National, were just as impervious to U.S. Bancorp's announcement. Shares of Imperial fell 37.5 cents, to $19, and City National fell 31.25 cents, to $39.50.
Analysts said Imperial has asset quality problems that take it out of the running as a takeover target. City National, better known as the bank to the stars, is a company many believe can remain independent and perform well.
Separately, Salomon Smith Barney analyst Jacqueline Reeves raised her price target on Marshall & Ilsley Corp. to $79, from $62. She said Marshall & Ilsley is expected to improve its operations and repurchase shares.
The analyst also raised Old Kent Financial Corp.'s earnings estimates-to $2.35, from $2.30, for 1999 and to $2.60, from $2.55 for 2000. Ms. Reeves said the company will continue improve its efficiency ratio and buy back shares.
Shares of Marshall & Ilsley fell 68.75 cents, to $67.875, and Old Kent Financial fell 25 cents, to $44.9375.