Bank stocks tumbled on Wednesday, snuffing an early rally after Bank of America Corp.s afternoon announcement that its fourth-quarter earnings would fall well short of Wall Street estimates.
In a statement released ahead of an appearance by executives at an investor conference hosted by Goldman Sachs, the Charlotte, N.C., bank said it expects fourth-quarter earnings per diluted share to be between 85 and 90 cents. (See article on page 1.) According to First Call/Thomson Financial, Wall Street had expected B of A to earn $1.17 per share. 
The American Banker index of the top 225 banks ended down 2.07%, while the index of the top 50 banks fell 1.72%. The Dow Jones industrial average was down 2.14%, and the Nasdaq composite index ended down 3.22%, reversing its morning gain of 0.59%.
Financial stocks closed down Wednesday, despite morning progress. Bank of America led the way, losing $3.1875, or 7.74%, to close at $38.
The B of A news spoiled gains that had been led by Chase Manhattan Corp., which won positive Wall Street reviews on Wednesday. Andrew B. Collins of ING Barings raised his rating for Chase to buy from hold Wednesday; he had downgraded it on Oct. 18.
Mr. Collins switched his rating back to buy on the possibility that the interest rate picture could soon improve citing Federal Reserve Chairman Alan Greenspans hints to that effect on Tuesday. Interest rate cuts would benefit bank stocks with low credit risk financials such as Chase, Citigroup Inc., Bank of New York Co., and Wells Fargo & Co., he said in an interview.
He also pointed out that historically, financial stocks perform well during the 60 days before a Fed funds-rate cut, but cautioned that deteriorating commercial credit quality could keep some bank shares from participating in a rally.
Chases merger with J.P. Morgan & Co., expected to close before yearend, should be a positive event for Chase shareholders, Mr. Collins said.
Chase was also cited as the favorite global pick in financial services by analysts at Merrill Lynch & Co.
At a luncheon Wednesday, Merrill Lynchs chief economists and strategists outlined their 2001 projections in 29 industry sectors. Its bank analysts picked Chase as one of the banks in that sector because it is on an aggressive, value-oriented path with exceptional upside potential, they said.
Their comments about Chases merger with J.P. Morgan echoed those of Mr. Collins. Merrill analysts called the deal a solid combination of Chases customer and balance-sheet strengths with Morgans securities product and international strengths.
We see outstanding value and nearly 90% upside for investors who can look out 12 to 18 months, the analysts said.
Though Mr. Collins said he expects significant market-related EPS weakness at Chase in the fourth quarter, reflecting losses from capital markets activity, most of it has already been priced into the shares.
Chase lost $1.25, or 3.03%, to end the day at $40.0625.
Carol Power contributed to this article.
