Tough Week for Bank Stocks
It has been a tough week for bank stocks since President Bush used his bully pulpit to thrust credit card interest rates into the debate on the economy's halting recovery.
And even though congressional legislation to place a ceiling on the rates is now on hold, after the stock market stumbled hard, most analysts on Wall Street sensed a ground swell that will not just go away.
"The bottom line is that credit card interest rates will likely be lower, either through legislation or through voluntary action by banks to avert the legislation," said James M. Rosenberg and Katherine R. Hensel, bank analysts at Shearson Lehman Brothers Inc.
Investors May Shift Focus
The Shearson analysts suspect that investors may shift their attention from banks with large card portfolios to banks "with more of a business focus." That group is headed by J.P. Morgan & Co. and includes Bankers Trust New York Corp., NBD Bancorp., and Continental Bank Corp.
Several of these banks, including Morgan and Bankers Trust, have also slipped in the past 10 days, but analysts cite profit taking rather a fundamental shift in investor sentiment.
D. Gordon Luce Jr. of Brown Brothers Harriman & Co. said American Express Co. could benefit at banks' expense if card rates fall, "since the high rates, typically 19.8% charged by major banks, subsidize features of Visa and MasterCard that have been a problem for American Express - namely, lower merchant discounts and frequent-flier programs."
Card Banks Harder Hit
Notably, American Express shares have dropped less than 2% while those of the 10 largest card-issuing banks have eroded as much as 12% on heavy volume since Mr. Bush said on Nov. 12, during a political fund-raising dinner in New York, that he would "frankly like to see credit card rates down."
The bigger jolt, of course, came three days later when the Senate quickly voted a 14% cap on rates, effective Jan. 1, that was sponsored by Sen. Alfonse M. D'Amato, the New York Republican.
The largest loss, at 12.4%, was suffered by BankAmerica Corp., San Francisco, the third-largest card issuer. In Thursday's trading it was off 50 cents to $35.125. Some of its weakness is attributed to worries about California's sluggish business climate.
New York's ailing Citicorp, the largest bank issuer, has surrendered 4.4% over the same period, but was up 12.5 cents to $10.625. Its $19.6 billion in yearend credit card loans outstanding amount to 9% of its total assets.
Implications for Citicorp
If the card rate cap were enacted, bank analysts Mark Alpert and Mark Lynch of Bear, Stearns & Co., New York, estimated Citicorp "would go from barely profitable to losing hundreds of millions of dollars per year at a time when its balance sheet is already imperiled by lousy real estate loans, inadequate reserves, and weak capital."
David S. Berry of Keefe, Bruyette & Woods Inc., New York, said his firm would have to reduce its 1992 earnings estimate for Citicorp to a loss of 58 cents a share from a profit of $1.50 if the rate cap were enacted.
Chase Manhattan, the second-largest issuer with a $10.9 billion portfolio of card outstandings amounting to 11% of its total assets, had lost 7.5% in value through Wednesday and was off 25 cents to $16.75 on Thursday.
Market's Tumble Hits Top 10 Card Issuers
Change in share prices % change Nov. 11-21(*)BankAmerica -12.4%Bank of New York -10.7Norwest -9.3NCNB -9.0First Chicago -8.8Wells Fargo -8.3Banc One -8.2Chase Manhattan -7.5Manufacturers Hanover -6.8Citicorp -4.4
(*)As of 3 p.m.
Sources: DB Technology Inc., Reuters