Two California banks became the object of takeover rumors after their stock prices surged more than 15% on heavy volume last week.
On Friday, City National Corp. set a new 52-week high, surging 16% in a week's time to $19 on Friday. It slipped on Monday, partly on a downgrade, closing at $17.875.
Imperial Bancorp also surpassed its previous 52-week high, climbing 15% in the same time period to $25.375. In Monday's market it was up 62.5 cents to $26.
"Commercial bank takeovers have sparked additional interest of late as a result of the activity in California," said analyst Frank J. Barkocy of Josephthal Lyon & Ross Inc. In light of recent thrift deals, he said, "everyone is looking at other plays."
Mr. Barkocy said this was not the first time City National has been pegged as a takeover candidate. "It is well run and its fundamentals have come along very nicely." He added that potential suitors for the bank include US Bancorp, which has a small and growing position in California, Norwest Corp. and First Bank System. Potential acquirers include banks looking to broaden their geographical position.
He emphasized, however, that if the takeover rumors are "just smoke and no fire, profit taking will take place after a while, and cause the price to dip." Company officials declined to comment.
Analyst Jeffrey Miller of Keefe Bruyette & Woods Inc. was dubious about the speculation because such rumors circulate frequently. He downgraded the stock to "hold" from "attractive" Monday morning after noting the stock's appreciation on Friday.
"The stock is fully valued," said Mr. Miller. "We think it will perform with the overall market as opposed to outperforming it."
Analysts were more dubious about Imperial Bancorp becoming a takeover target, in spite of the run-up in its price. Analyst Charlotte Chamberlain of Wedbush Morgan Securities conceded that the company looks "attractive," and could interest US Bancorp, Comerica Corp., or even Wells Fargo & Co., after the company digests its First Interstate Bancorp acquisition.
However, she attributed the run-up in stock price to the company's recent road show on the East Coast and because the company's 25% ownership of Imperial Credit Industries, a former finance subsidiary whose stock price also surged last week.
Robert Franko, the chief financial officer at Imperial Bancorp, also attributed the surge in price to the company's strong fundamentals. He said Imperial's loan growth was ahead of other banks, including Wells Fargo and profits from its small business lending niche.
"People said the same thing last year," said Mr. Franko, referring to the speculation. "We will give our shareholders the best value we can give them. If someone came along and gave us an attractive price, we will listen to it and if it makes sense, it will be done."
In other news, the Standard & Poor's Bank Index reached an new high during intraday trading, which analysts attribute to last week's rally in bank stocks.
The bank index rose to a high of 384.61 before it retreated to 384.43, up .77% from Friday.
Strategist Bryon Wien of Morgan Stanley said "banks stocks are hot right now because people believe the economy is slowing and interest rates are going down."
"But even if interest rates go up, bank earning are going to be fine ... banks can't lose."
Separately, Dean Witter Reynolds Inc. downgraded Nationsbank, based on price. Nationsbank rose 25 cents to $91.25