Banks Break The Mold - bank stocks that are good investments

Kiplinger's Personal Finance Magazine, July, 2000 by Beth Giese

Another superregional bank that's aggressively cross-selling financial products and services is Wells Fargo (WFC, NYSE, $45), which covers the entire western U.S. "Wells Fargo is the best example of a bank that has the multichannel strategy down pat," says Jeff Morris, who runs Invesco Financial Services fund. "It's got branches, ATMs and an Internet presence. Management is very forward-thinking." Wells Fargo is also blessed with a location on the West Coast, whose wealthy, tech-savvy population is growing. Adds Morris: "The online customer is more profitable, keeps more accounts with the bank and is less likely to leave."

Wells Fargo, whose banking operations were merged with Norwest in 1998, is expected by analysts to earn $2.56 per share this year--a 13% jump from 1999, which gives it a P/E of 18.

Bicoastal bank. But Wells Fargo has some competition in Bank of America (BAC, NYSE, $51), which became a coast-to-coast bank when Nations-Bank bought it in 1998 and adopted its name. It has another edge over Wells Fargo through its ownership of Montgomery Securities, a boutique investment bank that underwrites many of the initial public offerings of technology companies. In other words, many of the richest men and women in Silicon Valley already know Bank of America through Montgomery Securities, and have been rewarding it with their personal banking business as well. Nonetheless, the stock is cheap, The company is expected to earn $5.30 per share in 2000 (a 13% jump from last year), giving it a P/E of 10.

One last superregional bank favored by analysts is First Union (FTU, NYSE, $34), which has bought more than 70 banks and financial companies in the past dozen years. It now covers the East Coast from Florida to Connecticut. Still, most close watchers say the company isn't a finished shop. "I see it moving into the insurance and annuity business," says Joan Goodman, a banking analyst with Pershing, a division of Donaldson, Lufkin & Jenrette. Yet its stock trades at only ten times expected earnings of $3.53 per share this year.

--Reporter: SEAN O'NEILL

RELATED ARTICLE: OOPS! | Hook, line & sinker

THE HOOK: On May 9, Bloomberg quotes Comcast president Brian Roberts as saying that his company will acquire a majority stake in Excite@Home by flipping the terms of an earlier agreement that granted AT&T an option to acquire shares of Excite owned by Comcast for $48 a share.

THE LINE: Investors, some apparently believing that Comcast is planning a takeover bid, run Excite's share price from $17 to $28 that morning. On a Raging Bull message board, a posting by "pumagoog" fans the flames: "Comcast will issue $48 firm offer after the close ... Details at 4:30!"

THE SINKER: No takeover bid occurs. The same afternoon, Comcast treasurer John Alchin says his company will honor the option it granted AT&T to buy Comcast's shares of Excite. Comcast says that Roberts's quote was taken out of context. Excite closes the day at $20.

--WILLIAM D. WEBB JR.