Shares of U.S. Bancorp, the $79.5 billion-asset banking company based in Minneapolis, plummeted 28% on Monday after an announcement that it would fall short of its fourth-quarter and 2000 earnings projections.

The news shook bank stocks. The American Banker index of 50 banks and the American Banker index of 225 banks each fell nearly 5%. By contrast, the Dow Jones industrial average and the Standard & Poor's 500 index fell less than 1%.

"The news about U.S. Bancorp destroyed the rally that we enjoyed on Friday," said Adam J. Lewis, a senior vice president and bank stock trader at Keefe, Bruyette & Woods Inc. "All bank stocks are getting demolished."

U.S. Bancorp said it would earn 52 to 54 cents in the fourth quarter. The consensus of analysts surveyed by First Call/Thomson Financial was 59 cents. For 2000, U.S. Bancorp said it expects to earn $2.30 to $2.35; the consensus was $2.45.

In a conference call with analysts Monday, the company attributed its expected earnings shortfall to tighter margins. Low-cost commercial demand deposits failed to rise by the $600 million that had been expected for the fourth quarter, while growth in high-yielding consumer loans was lower than expected.

The banking company also was hurt by the narrowing of the difference between the prime rate - which sets the interest rate on many of its loans - and the London interbank offered rate, with which it funds many of its loans. The spread between these two rates has dropped to 205 basis points, from 280.

U.S. Bancorp executives who participated in the conference included John F. Grundhofer, chairman and chief executive officer; Susan Lester, chief financial officer; and Phil Heasley, president and chief operating officer.

In addition to funding problems, the company said it has been spending heavily on technology, including the Internet and its retail delivery systems. These expenses will be particularly felt in 2000, the officials said. Next year is the first time in 11 years that U.S. Bancorp's efficiency ratio is expected to worsen, the company said.

Lehman Brothers, Friedman, Billings Ramsey & Co., and Keefe Bruyette lowered their ratings on U.S. Bancorp.

"Yes, I was surprised by this," said Michael Plodwick, an analyst with Lehman Brothers. "This company admittedly had a difficult time in the second half of 1998, particularly on the revenue side," and missed revenue targets as it integrated its big 1997 merger, he said. "But by the middle of 1999 it looked like the company was back on track. We saw progress. So this announcement is a surprise."

Today's U.S. Bancorp was formed two years ago when First Bank System of Minneapolis merged with the old U.S. Bancorp, of Portland, Ore.

Investor displeasure with the company was contagious Monday, bringing most bank stocks down.

"People are extrapolating the problems of U.S. Bancorp and applying them to other regional banks," said Mr. Lewis. "This has to do with credibility or the lack thereof.

"We have had a litany of banks revising their earnings; people are not taking it anymore. Once they hear the news, they are blowing bank stocks out of their portfolios."

Other banking companies that recently said they expected earnings lower than analysts' projections include National City Corp. of Cleveland; First Union Corp. of Charlotte, N.C.; and Bank One Corp. of Chicago.

"Any regional bank reliant on spread income is vulnerable to these issues," said Joseph Duwan, an analyst with Keefe Bruyette. "The market is taking a 'you are guilty until proven innocent' stance," he said.

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