"Buy low" was the watchword for the top 25 institutional investors in large-bank stocks in the fourth quarter.

At a time when bank share prices were languishing, these institutional investors boosted their holdings of the 50 largest banks' stocks by $12.3 billion, or 5.58%.

It was the largest percentage increase in their holdings since a year earlier, according to data compiled by Thomson Financial Securities Data, a sister company of American Banker. In the fourth quarter of 1997, major investors in bank stocks added $10.7 billion, or 5.83%, to their portfolios.

Large institutional investors are perhaps the most faithful followers of the investment adage "buy low, sell high." As market valuations surged during the second quarter of 1998, for instance, these same investors were big sellers of bank stocks.

Aggressive buyers in the fourth quarter included Sanford C. Bernstein & Co., which increased its holdings by 95%, or $1.8 billion; Capital Research and Management, which added 34%, or $3.5 billion; and State Street Corp., which added 26%, or $2.7 billion.

Not all segments of financial services attracted institutional investors, however. The top holders of thrift stocks slightly decreased their positions during the fourth quarter, after increasing holdings in the third.

As a group, the top 15 institutional holders of thrift stocks shed 0.27%, or $40 million, of their holdings of the top 25 thrifts.

Leading sellers included Equitable Cos., which shaved its position 23%; College Retirement Equities, which cut back 10%; and Mellon Bank Corp., which trimmed 9%.

The fourth quarter was a particularly uneasy time for bank stock investing. Uncertainty stalked the market and brought many bank stocks to 52-week lows. Among the worries: banks' exposure to hedge funds and tumultuous foreign markets and talk of a recession in 1999.

"There was panic selling across the entire range of banks," recalled Stephen Berman, buy-side analyst for the Stein Roe & Farnham Inc., Chicago. "And when the market bottomed out, people were still too shell-shocked to act. Those who bought bank stocks at that time were courageous, because many perceived a lot of risk in the market."

Indeed, J.P. Morgan & Co. warned in early December that fourth-quarter earnings would be less than analysts' expectations; that warning once again sapped investor confidence. And though bank stocks gained at the end of the fourth quarter, many investors were still hesitant about buying them, said Mr. Berman. "People began to wonder if the stocks were ahead of themselves."

But the smart money followed signs that bank stocks were poised for a comeback, said Scott Edgar, research director of the SIFE Trust Fund.

The Federal Reserve cut interest rates several times during the second half of the year, and Chase Manhattan reported strong fourth-quarter earnings, he noted.

"Some bank stocks were just too cheap to ignore."

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