In a shift from pitching the stock of potential merger targets, Wheat First Butcher Singer is developing a unit investment trust composed of stock in banks that have been acquirers in the recent merger binge.
The fund will allow retail investors to buy a stake in as many as 30 regional banks for as little as $1,500.
It is one sign of a broad shift in market sentiment, as analysts turn their attention from identifying targets to predicting which deals will actually succeed.
"Right now, you're paying an awful lot for those consolidation candidates," said Merrill Ross, a Wheat First bank analyst who, along with David C. Stumpf, is selecting stocks for the trust.
Ms. Ross said merger speculation has pushed targets' stock close to the merger prices, eliminating the potential windfall to investors.
Merger-minded investors should respond, Ms. Ross said, by focusing on the acquirers - banks whose shares have dipped on merger news but that stand to benefit from cost savings and dominance in their markets as the mergers pay off.
"These are companies that are going to be the victors of consolidation rather than the victims," she said.
Wheat First, based in Richmond, Va., is just one of a growing number of investment firms that are advising caution.
Earlier this week, Kemper Securities Inc. analyst Thomas Maier downgraded four stocks because of a run-up in their share prices that was sparked by takeover speculation.
First Federal Bancshares, Firstar Corp., Magna Corp., and Mark Twain Bancshares were lowered to "market performer" from from "long-term buy."
"All four have further upside potential in the event of a merger, but their recent strength may have already rewarded their shareholders with a substantial portion of that premium," he said.
In one recent deal, First Bank System's buyout of Firstier Financial, the merger price of $39 a share was less than the trading value of Firstier stock, prompting talk among analysts about "takeunders" in the banking industry.
One stock that is sure to be part of the Wheat First Financial Institutions Unit Trust is that of NationsBank Corp. Ms. Ross said the bank's chairman, Hugh McColl, addressed Wheat First brokers Wednesday on his concept of "how to create value in the banking system."
NationsBank stock opened trading Thursday at $61.50, or 9.8 times the previous 12 month's earnings. Most of the top 50 banks in market capitalization trade at more than 11 times trailing earnings.
Ms. Ross also mentioned First Union Corp. and National City Corp. as companies that fit the unit investment trust's criteria. She said Wheat First is picking stocks of companies headquartered east of the Mississippi that are currently trading at a discount to the group but that will have dominant share in markets where the economy is growing.
"The most exciting performers will be the ones that are linchpins in the marketplace," she said.
Noting speculation that shareholders may block PNC Bank Corp.'s acquisition of Midlantic Corp, Ms. Maier emphasized that she doesn't buy into every merger story.
Although PNC's stock won't be in the trust because she doesn't expect it to outperform the market, Ms. Ross said she believes there are compelling arguments for the acquisition and that it is likely to be approved by shareholders.
In addition to downgrading some merger targets, Mr. Maier of Kemper upgraded Firstier, to "long-term buy" from "market performer." Firstier stock is a bargain despite the takeover at $39, he said, because its shareholders will receive First Bank stock, which has risen in value.
He said Firstier could rise to $42 a share. It was up 25 cents, to $39.25, on Thursday.
He also upgraded First of America Corp. to "market performer" from "market underperformer." The bank remains a strong acquisition candidate and has a solid franchise, Mr. Maier said.
On Thursday, the Standard & Poor's index of major banks fell 0.3%, while the S&P 500 rose 0.02%.
Among the losers were Mellon Bank Corp., off $1.375 to $45.50, and J.P. Morgan & Co., down $1 to $72.625.
U.S. Trust Corp.'s share price was adjusted Thursday to reflect the sale of its processing business to Chase Manhattan Corp. The shares, which closed Wednesday at $79.50, closed Thursday at $42.75, up 50 cents on an adjusted basis.