More Takeover News Boosts Banks

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As broad averages moved in a narrow range, investors turned their eyes to the rapidly consolidating banking industry.

Today

Banc One

(ONE:NYSE) said it intends to buy

First USA

(FUS:NYSE) in a $7.3 billion stock deal. After a delayed opening, shares of First USA jumped 9 or more, while Banc One slipped a few points.

Some observers expressed concern that the deal would dilute Banc One shareholders. The deal currently values First USA at $53.60 per First USA share. That issue was sure to come up at an 11 AM management chat with analysts, but unfortunately the big guys have shut out the press. Small investors will be sidelined for the time being.

First USA Paymentech

(PTI:NYSE), a credit-card processing firm majority held by First USA, jumped 2 1/8 to 35.

The merger has spawned a quick run-up in the banking sector.

Wells Fargo

(WFC:NYSE),

Citicorp

(CCI:NYSE) and

Bank of New York

(BK:NYSE) all lifted in morning trading.

Capital One

(COF:NYSE) stock also jumped.

Analyst Thomas Facciola at

Salomon Brothers

flogged the buy bank theme, upgrading Capital One to a "buy" rating this morning. He cited the high valuation that Banc One is giving First USA as a primary reason for the upgrade. Banc One is purchasing the credit card powerhouse, which boasts 16 million cardholders, for 20 times projected per-share earnings for the 1997 calendar year.

Capital One, on the other hand, currently trades at 11.5 times forward earnings. Facciola gives it a six-month price target of $42, or 15 times forward earnings, compared to its price of 37 or so this morning.

Always holding investor attention is the sprightly performance of

Microsoft

(MSFT:Nasdaq). The software giant reported strong earnings Friday evening, but offered its standard, cryptic commentary about future earnings prospects. Microsoft edged lower in after-hours trading Friday evening, but was up a strong 2 5/8 to 89 5/8 in heavy trading at midday.

Last week

Dow Jones

(DJ:NYSE) surged in the wake of a

Fortune

story that outlined how younger members of the company's controlling family are agitating for better stock performance. Today, however, Dow Jones conceded that its Telerate business is floundering and will require the injection of more than $650 million to boost prospects. Dow Jones was down 4 3/8 to 36 1/2 at midday.

Bond traders are resting today, in honor of Rev. Martin Luther King.

By Kevin Petrie

kpetrie@thestreet.com