The market value of the nation's top 100 banks, after hitting $1 trillion at midyear for the first time, plummeted 23.3% during the third quarter as investors focused their global economic fears on the financial sector.
The slide broke a string of 14 quarterly gains for the industry leaders. The last time their aggregate market capitalization dropped was in the fourth quarter of 1994, when the Federal Reserve was raising interest rates.
Market capitalization-the value of the common stock-is a barometer of Wall Street's enthusiasm, and the drop reflects how far the industry's currency has fallen.
On Sept. 30 the market value of the top 100 banking companies' stock had fallen to $794.5 billion, from $1.03 trillion on June 30. (See page 29 for complete rankings.)
The new BankAmerica Corp., whose merger with NationsBank Corp. officially closed Sept. 30, grabbed the No. 1 spot on the roster despite a 30.1% summer decline in market value, to $93.1 billion on a pro forma basis.
"It was just a hell of a market," said Frank J. Barkocy, an industry analyst at Josephthal & Co., New York. "Hopefully, third-quarter earnings, which we begin seeing in earnest on Tuesday, will aid the stabilization process."
While influenced by overall stock market trends, shifts in the industry's market capitalization telegraph investor sentiment about banks' strategies and management, as well as the risks they are perceived to face in the current business environment.
In general, analysts said the precipitous dive in banks' market capitalization last quarter-$242 billion of value was lost-can be blamed on investors' anxieties about the global economic climate-which in turn led to evaporation of takeover sentiment that had previously driven up valuations.
Compounding matters, a number of major banks were hamstrung by pending and newly completed deals during the third quarter from supporting their market valuations through stock repurchase programs.
"We saw a tremendous slowing in takeover momentum in the last quarter," said Mr. Barkocy. With banks suffering swift and sizable valuation declines, "neither prospective acquirees nor acquirers had a good feel for pricing.
"But other than pricing, I really don't think any of the main ingredients for consolidation have changed, and I feel we'll see a resumption, perhaps as early the current quarter," he asserted.
A series of major deals completed just as the third quarter ended and fourth quarter began, combined with the volatile market, prompted a wholesale reordering of the top banks in valuation.
In second place in market capitalization behind BankAmerica was Citigroup, the combined Citicorp and Travelers Group, whose market capital was $85.4 billion, down 38.1% for the quarter on a pro forma basis. The Citigroup deal closed Oct. 8.
Third-up from the fifth spot-was First Union Corp., with a value of $52.2 billion, down 11% from June 30.
Fourth was the new Bank One Corp., Chicago, with a market cap of $49.7 billion, down 24% from midyear on a pro forma basis. The new company was formed Oct. 2 from the merger of Banc One Corp., Columbus, Ohio, and First Chicago NBD Corp. In the previous quarter, Banc One had ranked sixth in valuation and First Chicago NBD 11th.
Fifth was New York's Chase Manhattan Corp., with a value of $37 billion, down 42.3%. Chase occupied the third slot at midyear.
Some companies suffered enormous valuation damage in the third quarter. BB&T Corp., Winston-Salem, N.C., was down 55.7% to $4.33 billion, falling to 37th from the 24th spot. Bank of New York Co. was off 55% to $10 billion, dropping to 19th from the 11th spot.
On the other hand, Firstar Corp., Milwaukee, improved 32.5%, to a Sept. 30 market valuation of $7.3 billion, and in the process advanced 10 spots to 26th place among banks.