Bank Shares Are Snapped Up - TheStreet

Financial shares were staging a minor rally Monday, underpinning strength in the

Dow

despite grim news from a European counterpart.

At midday, the Philadephia KBW Bank Index was up 1.7%. Two of the best-performing stocks were the nation's two biggest banks:

J.P. Morgan

(JPM) - Get Report

was up 88 cents, or 4%, to $22.73, while

Citigroup

(C) - Get Report

climbed 81 cents, or 2.5%, to $33.35.

Brokerage stocks also posted strong gains. Shares of

Merrill Lynch

(MER)

were up $1.18, or 3.5%, to $35, while

Morgan Stanley

(MWD)

rose 91 cents, or 2.5%, to $36.70.

The gains appear driven less by fundamentals than the depressed levels at which many bank stocks are trading, coupled with Wall Street perceptions that a war with Iraq may not be as near it had appeared a few weeks ago. It's worth noting that Wall Street's view on the possibility of a war with Iraq seems to change with each passing day.

Meanwhile, the message coming from Europe on the financial front seemed out of step with Wall Street's postholiday optimism.

UBS

(UBS) - Get Report

, the biggest Swiss bank, reported a $73.7 million fourth-quarter loss and said it expects to see slow revenue growth for at least the first half of this year. The bank said it expects to continue to be plagued by a rise in bad loans and the fallout from the stock market slump. It said revenue in the first six months of this year won't surpass last year's half-year revenue numbers.

UBS attributed much of its fourth-quarter loss to a charge arising from its decision to drop the PaineWebber brand name from its U.S. brokerage and asset-management business. UBS acquired Paine Webber more than two years ago for $11.5 billion.

UBS is just the latest in a string of European banks to report poor earnings and warn of continuing revenue and earnings slump. A few weeks ago,

Credit Suisse Group

(CSR)

, the parent of Credit Suisse First Boston, said it lost $2.48 billion in 2002 -- much of that due to the poor performance of its CSFB investment banking division. And Germany's

Deutsche Bank

(DB) - Get Report

also has warned of depressed earnings.

In one potential red flag for U.S. bank investors, UBS said it expects loan losses to keep rising this year. The comments come when many investors seem to believe the worst is behind U.S. banks when it comes to taking writedowns and charge-offs for bad commercial loans.