With banking profitability seemingly set to retreat from peak levels, general trading values appear headed for a holding pattern. But diverging performances still will provide select investment opportunities. That's the consensus among the four experts participating in the American Banker's second-quarter analysts' roundtable discussion. At the same time, sharp differences between the panelists emerged over the time horizon for a profit downturn, the potential depth of eventual credit quality problems, and which performance indexes are most critical. For the launch of this quarterly feature, we invited four well-known bank analysts: Robert Albertson of Goldman, Sachs & Co.; Thomas Brown of Donaldson, Lufkin & Jenrette; Felice Gelman of Keefe Managers Inc.; and Dennis Shea of Morgan Stanley & Co. This panel will remain intact for a few more sessions. A rotation will begin thereafter, with at least one new voice joining the four-member group each quarter. In a wide-ranging discussion held at this newspaper's headquarters, panelists agreed that banking fundamentals remain solid and that most market concerns - over issues such as the direction of interest rates and credit quality - are already factored into trading values. That combination provides a floor for stock valuations. At the same time, several of the analysts cautioned that profitability declines are in the offing. As we traverse the next leg of the economic expansion, the mettle of better-managed institutions will stand out more clearly - as will the shortcomings of weaker rivals.
AMERICAN BANKER: Bank stocks took a beating last year as rates rose sharply. Rate concerns have eased this year, however, and the banking sector has rallied. As of June 12, the American Banker index of 225 bank stocks was up 17.8% from the end of 1994.