Stocks at large banks trailed the overall market Tuesday during a sluggish day of trading, but analysts weren't worried.
Elizabeth Summers, bank analyst at Ryan, Beck & Co. said recent trading trends indicate "a correction of regional banks in a bull market."
The Standard & Poor's bank index fell 0.34%, while the S&P 500 fell 0.29%, and the Dow Jones industrial average rose 0.14%.
Ms. Summers and other analysts are optimistic bank stocks will recover early next year. "I'm comfortable because I know where the earnings are going to come from, where the revenue growth will be," she said.
She added that some of her favorite banks, such as First Union Corp., PNC Bank Corp., and Fleet Financial Group have recovered the 5% to 8% drops they experienced in last week's selloff.
Anthony Davis, bank analyst at Dean Witter Reynolds, said preliminary indications show loan growth is up slightly at banks. He predicted solid earnings in the fourth quarter, with less of the financial engineering he says some used to bolster third-quarter results.
Despite the current malaise, investors continue to reward banks that initiate or expand stock buyback programs. Shares at Star Banc Corp. rose $2.50, to $91. The Cincinnati bank announced a three-for-one stock split and an expansion of its stock buyback program to 10% from 7%.
Shares of Summit Bancorp rose 12.5 cents, to $43.875, after receiving an upgrade to "buy" from "market perform" by Oppenheimer & Co. analyst Cheryl Swaim, who was not available to comment.
Other analysts noted that the Princeton, N.J., banking company has underperformed the S&P bank index this year, and that it had completed of its merger with Central Jersey Financial Corp. Summit also has announced a merger with BMJ Financial Corp.
Ms. Summers said she was unsure if shares at the $22 billion-asset bank's stock can go much higher. Though she rates the bank "buy," she says Summit is trading at the top of its price range. The bank operates in a highly competitive market and has been the subject of takeover speculation for some time, Ms. Summers said.
Because the bank is already nearly fully valued in her view, she said a takeover is unlikely to generate much of a run-up.
With regional banks in a trough, investors are evidently searching for cheap stocks and small and midsize banks. The Nasdaq bank index, which covers such banks, rose 0.17% yesterday.
Trading volume in Trustmark Corp. in Jackson, Miss., was four times the daily average, as shares rose $1.50, to $28. Earlier in the day, the bank reported three share purchases by the chairman and members of the board.
The bank did not respond to a request for elaboration by press time.
Kathryn Bissette, analyst at Stern, Agee & Leach, called Trustmark bank "a good franchise," one that would be attractive to any bank seeking market share in Mississippi.