this year because of the dark clouds from abroad that are hanging over the industry, analysts say. "Top-quality names will move further ahead of the pack," said Sean J. Ryan of Bear, Stearns & Co. "We are going into 1999 with slower economic growth and continued disinflation that should feed into the continuing bifurcation of bank stocks." Indeed, some regional banks stocks outpaced the industry group last week as value investors began funneling their money into what many analysts call "quality names"-banks with strong business operations and little exposure to foreign markets and hedge funds. According to Mr. Ryan, this group includes SunTrust Banks Inc., BB&T Corp., First Tennessee National Corp., and Firstar Corp. which were up 7.8%, 4.3%, 6.3%, and 13.5%, respectively, in the seven days of trading that ended Wednesday. The Standard & Poor's bank index gained only 1.1% in the same time period. "The market has been awarding higher valuations only to those banks that have demonstrated the greatest ability to sustain high profitability and growth rates, while the rest of the group has languished at lower valuations," Mr. Ryan wrote in a recent report. The analyst said he expects investors' enthusiasm for bank stocks to continue, regardless of the year-2000 issue or a slowing economy. In 1996 and 1997, Mr. Ryan said, banks as a group behaved homogeneously. In those years, he said, "we had a strong economy and inflation, which masks many of blemishes of the banking industry. "A strong economy will bail you out of the bad loans and inflation will allow you to profit just from playing the yield curve." That, however, was not the case in 1998, Mr. Ryan said. "There has been more disparity in the performance of the banks stocks, and that trend is here to stay." Banks that continue to deliver so-so performances or continue to take a "business as usual" approach are going to see their earnings growth dissipate very rapidly, he said. Good banks, as opposed to great banks, also have potential in the new year, either because they are not too far behind the great performers or because they are acquisition targets, he said. Summit Bancorp fits this category, he said. Mr. Ryan has a 12-month price target of $54 for the company, and estimates its takeover price in the high $50s. Bank analyst Frank J. Barkocy of Josephthal & Co. said he expects bank stocks with medium-sized market capitalization to move ahead of the pack because consolidation and business operations are still going strong. Many of the mid-cap bank and thrift stocks in a fund managed by Josephthal have done well because they are "pure value plays," or sell at low multiples, Mr. Barkocy said. Consolidation has also boosted the companies' value. Republic Bancorp of Ann Arbor, Mich., agreed Dec. 1 to buy D&N Financial Corp., one of the banks in the trust. "Consolidation will continue," Mr. Barkocy said. "There may be a slowing, but it will pick up momentum as we head into the year 2000."
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