Mirroring investors' fears of higher interest rates, the market capitalization of the nation's 100 largest banking companies inched up only 1.3% in the second quarter, the smallest increase in 18 months.
A dearth of high-profile acquisition deals among top banks also drained some of the excitement from bank stocks during the spring quarter, bankers and analysts said.
The market worth of the 100 biggest banking companies was $454.1 billion on June 30, according to data from SNL Securities. That was a record high, but the banks added only $6 billion in value during the quarter, versus a gain of $41 billion in the first quarter. (See table on page 25.)
"We had a huge run, and now we are playing out an interest-rate scenario. In addition, the takeover game has been put on hold," said Miles P.H. Seifert, chairman of Gray, Seifert & Co., a major bank stock investor.
"The banks have had a rough month, but we continue to own them. We see the economic outlook, including rates, as fairly benign for banks," said Ronald K. Stribley, vice president of Glenmeade Trust Co., a Philadelphia investment management firm.
Of the 10 largest-capitalization banks, five suffered declines in market value during the quarter. The most slippage occurred with Wells Fargo & Co., whose valuation fell 9.9% to $22.9 billion after adjusting for its acquisition of First Interstate Bancorp.
But the market-value leader among U.S. banks, New York's Citicorp, enjoyed a 3.4% gain that raised its worth to almost $39.8 billion.
In second place was Chase Manhattan Corp., up a spare 0.25% in the April-June period to $30.7 billion. Third was BankAmerica Corp., off 2.26% in the quarter to a market value of $27.6 billion.
In percentage terms, the top gainer for the quarter was City National Corp., Beverly Hills, up 15.6% to a value of $686.8 million.
Short of a recession, Mr. Seifert said, he sees no reason not to own banks at this time. Mr. Stribley also isn't worried. "The economy looks like it will muddle along, with rates staying about where they are, or even drifting down," the Philadelphia money manager said.
Mr. Seifert, whose firm is a unit of Legg Mason Inc., Baltimore, said he was perplexed that bank stocks still sell off whenever rates rise. "You would think it would be apparent after 1994 that bank earnings can go up while rates rise," he said.
While earnings held up, the top 100 banks lost $26.4 billion in market value during the second half of 1994 as the Federal Reserve raised rates to slow the economy and thwart inflation.
Since yearend 1994, however, the biggest banks have piled up an extraordinary $192.3 billion of additional capitalization. Indeed, they added more in value in just 18 months than their aggregate market worth at yearend 1991, the industry's recent low point.
Some of the banks' recent slowdown in market appreciation is likely due to concerns about credit quality in the banks' consumer loan portfolios, especially regarding credit cards.
And despite worries about high consumer debt levels, investors clearly continue to prize banks that are specialists in the credit card business. That is reflected in the market's capitalization-to-assets ratios.
MBNA Corp., Wilmington, Del., the specialty card issuer, ranked first in this category on June 30, with a market valuation equivalent to nearly half its assets, at 48.7%.
A higher ratio of market capital to assets signals that investors are willing to pay more for a stake in each dollar of a banking company's assets.
Top ratios typically belong to the banks that are industry leaders in profitable business lines, including those who derive significant parts of their earnings from fee-based activities, as well as banks seen as highly efficient or with especially strong franchises.
Second to MBNA in market capital to assets was Wells Fargo, with a ratio of 46.8%. The San Francisco superregional is regarded as an innovator in customer service and has a reputation for rigorous expense control and high efficency.
Third was Synovus Financial Corp., at 31.4%. The Columbus, Ga., bank regularly ranks high in this category because of the 81% ownership stake it retains in its credit card processing affiliate, Total System Services Inc.
Both the major Cincinnati banks ranked in the top 10 in this classification, a mark of distinction for the Queen City. Fifth Third Bancorp enjoyed a market cap-to-assets ratio of 29.3%, while rival Star Banc Corp. had a 20.7% ratio.
At the other end of the spectrum, Bankers Trust New York Corp. had the lowest market value in relation to assets, at 5.42%. This may indicate that, after derivatives-related problems, the bank still has work to do on its reputation. The decline may also be a sign that the stock is undervalued.
