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Net fever strikes NetB@nk stock

The online-only bank enjoys the Internet effect on Wall Street, but can it compete with the big boys in the banking biz?

With a mere $280 million in assets, NetB@nk could hardly be considered serious competition for such financial giants as Wells Fargo and Citibank, but investors are pricing its stock as if it were.

The Alpharetta, Georgia-based bank, which operates only on the Internet, went public in July of 1997. Until late last year, investors found little to get excited about. Although NetB@nk is profitable, its predecessor in the online-only banking market, Security First Network Bank, had suffered losses until finally being acquired for $20 million by Canada's Royal Bank last year.

But the market seems to have forgotten Security First Network Bank's story in its optimism about NetB@nk, whose shares have been climbing steadily. Today, the stock jumped 76.5156 points to 235.0156, a rise of 48 percent, after the company announced a 3-for-1 split, effective for shareholders of record on April 23.

The two investment banks that follow NetB@nk stock, Bear Stearns and Raymond James, both maintain "buy" ratings on it.

Other online financial stocks made strong gains today as well, including E*Trade, which jumped 31 percent to 125.50, a gain of 29.50, and Ameritrade, which added 31 to 173.25. Even shares of Equitex, a holding company that invests in financially troubled companies, got a boost after the company announced its acquisition of First TeleBanc. The Florida company, which has just $5 million in assets, hopes to enter the online banking market this summer. Equitex shares jumped to 41.875, a gain of 18.4375.

Other Internet-only banks include CompuBank, Telebank, and First Internet Bank of Indiana.

Equitex, E*Trade and NetB@nk, whose products include checking accounts, bill payment and even mortgages, are riding a wave of enthusiasm for online finance companies. According to a recent report, online stock trading volumes grew 30-35 percent in the first quarter, compared to the previous quarter, as Net brokerages continue to take market share away from traditional brokers.

But the Internet isn't likely to revolutionize banking in the same way it changed stock trading, according to analyst Rob Sterling of Jupiter Communications. "People who are looking for [online banks] to succeed as wildly as Internet brokerages are barking up the wrong tree," Sterling said. "The Internet's revolution of brokerages was about access the market at a low cost. Banks already went through that with ATMs in the '80s."

Jupiter has predicted steady but not spectacular growth in online banking, with 10.2 percent of U.S. banking households adopting it this year, 13.4 percent in 2000 and 15.7 percent in 2001.

NetB@nk may be an early mover in the online banking area, but it doesn't represent a serious threat to banks with an offline presence, most of whom offer Internet access to accounts. "The major banks are showing signs that they are able to convert customers cost-effectively and have a motive for developing the channel," said Chris Musto, a senior analyst with Gomez Advisors. In fact, Wells Fargo added 150,000 online banking customers in the first quarter of this year, according to spokeswoman Wendy Grover, bringing the bank's total to 820,000. NetB@nk had just over 20,000 accounts by mid-February.

Those number make many analysts wary of NetB@nk's ability to create a major bank out of an online presence. NetB@nk's stock gain "is just general Internet stock hysteria," said Scott Smith, an e-commerce analyst with Tera Group.