Brown Brothers Harriman on Tuesday downgraded First Union Corp. shares, citing unimpressive third-quarter earnings and continued deterioration in the regional bank's credit card portfolio.
Analyst Nancy Bush cut First Union to "short-term hold" from "short-term buy" and lowered her 1996 earnings estimate of $6.35 to $6.30. She slashed her 1997 earnings-per-share estimate to $6.85 from $7.10.
"We've seen one quarter too many that we've had to explain a poor quality earnings report," wrote Ms. Bush in a report to investors.
First Union's stock fell to 25 cents to $67.875 on a day when bank stocks, and stocks in general, lost altitude due to a downdraft in the bond market.
The Standard & Poor's bank index fell 0.01%, while the S&P 500 tumbled 0.14%. The Dow Jones industrial average declined 0.09% after closing above the 6,000 mark for the first time on Monday.
Ms. Bush expressed concern over First Union's continued bid for market share in credit cards, even as losses continue to rise. If the company was "not pushing cards out the door, not so many potential deadbeats" would get them, she wrote.
She pointed to First Union's portfolio worsened when roughly $700 million in receivables that the bank had tried unsuccessfully to securitize had to be moved back onto the balance sheet.
Other points of consternation for Ms. Bush: a widening gap between First Union's net losses and its loan loss provision; and management estimates for future loan losses that were at least $15 million higher than she expected.
Analyst Anthony Davis of Dean Witter Reynolds said that First Union's earnings were in line with expectations, arguing that the bank has the expertise to reduce credit quality problems.
The Dean Witter analyst noted a $58 million increase First Union's fee income this quarter, which accounted for 43% of the company's earnings growth. "They have twice the growth rate in fee income of a typical bank," he said.
But Ms. Bush said she doubts that if first Union's fee income will be enough to offset the company's continuing credit problems.
Separately, Smith Barney Inc. initiated coverage of Bank United Corp., with an "outperform" rating helping to lift the stock 37.5 cents to $25.125.
Analyst Thomas O'Donnell said that the largest thrift in Texas - whose biggest investor is mortgage-backed securities king Lewis Ranieri - has a bank-style approach to management, and is an "excellent vehicle by which to play the rebounding Texas economy." Mr. O'Donnell's estimates the stock will earn $3.25 a share in 1997. His 12-month target price is $28 to $30.
In other news, Chase Manhattan Corp. said it plans to repurchase 2.5 billion of its shares, or 6.8% of its outstanding stock through 1998. Chase shares remained unchanged at $82.50.
First Chicago NBD Corp. announced a plan to purchase up to a 40 million shares, out of 318 million shares outstanding in two to three years. Its shares climbed $1.625 to $48.25 on the news.
