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SIVY ON STOCKS from money.com
December 6, 2000

Banks hitting bottom

Earnings disappointments and fears about bad loans have triggered a new
round of selloffs for financials like Bank of America and Chase Manhattan.
But it looks as though the worst is over.

By Michael Sivy

Bank of America's announcement on Wednesday afternoon that fourth-quarter
profits would fall substantially short of expectations sent major bank
stocks into a tailspin. B of A [BAC] closed the day down nearly 8 percent,
while Chase [CMB] dropped 3 percent. These declines are only the latest bad
news for the commercial banking sector, which has been battered all year.
In fact, both B of A and Chase are down by more than 20 percent since the
start of the year.

I can't say I anticipated the sell-off, since I bought Bank of America more
than 15 percent above its current price. Nonetheless, there's nothing
surprising about banks reporting bad numbers after a year of high interest
rates and six months of slowing economic growth.

Traders also got caught off guard by B of A's news. They were heavy buyers
of bank stocks Tuesday after Alan Greenspan addressed a conference of
bankers in New York City. The Federal Reserve chairman said "the pace of
economic activity has moderated appreciably." He added that the Fed now has
to be more attentive to the risk that the economy might slow too much. Many
economists read into those comments that the Fed will formally change its
stance in favor of lowering interest rates at its Dec. 19 meeting, and
actually cut them early next year.

Such news ought to be bullish for bank stocks. So why are they still
falling? Basically, they've virtually acknowledged that they'll report
sub-par earnings and higher loan losses this quarter and probably next.
Share prices could dip a bit more as those weak results get reported. But
most of that bad news is history -- from here on out, the trends will be
getting better, not worse.

Bank of America, which merged with NationsBank in 1998, is the largest U.S.
bank. Its stock is currently down to a paltry $38, just $2 above the
52-week low. For 2001, B of A should report earnings of about $5 a share,
just a single-digit gain from estimated 2000 results. Over the next five
years, however, analysts think the bank could grow earnings by about 10
percent annually. Including the 5 percent-plus dividend yield, that's quite
a generous return for shares that are trading at only eight times earnings.

Chase Manhattan presents a similar case. The bank, which is acquiring J.P.
Morgan, has been knocked down in anticipation of bad fourth-quarter
results. Chase is a major lender to troubled Xerox, for example, so that
could be a source of loan losses. Nonetheless, the banking giant offers 11
percent projected long-term earnings growth and a 3 percent dividend yield.
With a P/E of just over 10 times next year's estimated earnings, Chase
looks like a compelling buy as well.


=======================
CHAT TRANSCRIPTS
MONEY's Michael Sivy identifies sectors and stocks that possess
true value in a rocky market.
http://www.money.com/chat/2000/001204.html

Tech Investor David Futrelle discusses the current state of the
tech market and the outlook for various sectors.
http://www.money.com/chat/2000/001201.html
=======================

###

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