INTEREST TO BEAR.

• Author: Maley, Frank
• Position: Brief Article

Rising rates shrank the total market cap of the state's largest public companies, especially the big banks on top.

More than a year ago, the Federal Reserve started hiking short-term interest rates, hoping to take steam out of a fast-growing economy. "At the time, we said, 'Be careful, the financial markets are going to react immediately, but the economy is going to take up to a year before it reacts,' and we're just starting to see signs of a slowing economy," says John Lynch, director of investment strategy at IJL Wachovia, part of Wachovia Securities Inc.

The market did respond immediately and punished rate-sensitive companies, especially banks. Most still haven't crawled all the way out of the doghouse. That much is confirmed by our annual ranking of North Carolina's Top 75 public companies, compiled this year by IJL Wachovia.

During the past year, the Top 75 lost more than 13% of its market value. About 95% of that drop comes from the top two companies on the list: Bank of America Corp. and First Union Corp. First Union hurt itself by missing earnings estimates twice, but each was affected by rising interest rates and concerns about how well the banks would integrate recent major acquisitions.

That's led to what Lynch thinks are undervalued bank stocks. With deregulation and the diversification of banks into stocks, insurance arid fee-based services, banks are no longer as sensitive to interest-rate fluctuations. "Banks...