Stock: B of A Shares Drop After San Francisco Threatens Lawsuit

Shares of BankAmerica Corp. dipped after the city of San Francisco said it, other municipalities, and California plan to file a lawsuit today charging the bank with mishandling municipal bonds and overcharging for trustee services.

The city is seeking at least $12 million for compensation of losses, and as much as $17 million. BankAmerica's stock closed off $1.50 a share, to $115.50, after trading as low as $113.25.

The allegations focus on a subsidiary of the bank which it bought in its acquisition of Security Pacific Corp. and sold a year ago to the Bank of New York, called Institutional Trust and Securities Services, BankAmerica said.

"We have seen rumors of a lawsuit but we have not seen an actual lawsuit," BankAmerica said in a release. "We have been in negotiations with the city of San Francisco and the state of California over activities related to a business that we no longer own. Regardless of the numbers you may have seen, we do not think our exposure in this matter is material."

Analysts said that the bank is probably correct in saying that the suit will not affect earnings.

"I think this thing has been way overblown," said Joseph K. Morford 3d, an analyst at Alex. Brown & Sons Inc., San Francisco. "The most important thing, however, is that this should not have any material effect. I am not changing any of my earnings estimates."

The rumors early Thursday suggested that the city attorney's office was seeking damages in excess of tens of millions of dollars.

"The market was looking for something substantially higher," said Campbell Chaney, analyst with Sandler O'Neill Partners, Walnut Creek, Calif. "Basically BofA is being charged with holding back fees that should have been passed along to the municipalities."

The city attorney's office said that, in conjunction with the state, it has been investigating the bank's conduct in this matter for some time, and the investigation continues.

Shares of Student Loan Marketing Association fell $1.375 to $116.875 Thursday during a market selloff, after surging for most of the week on the strength of an upbeat presentation by management and a favorable court decision on loan fees.

Management, under pressure from dissident shareholders to build value, last week lifted its projection of annual earnings growth to 15% from 11%, prompting shares to lift off. By Tuesday they were at $114, up from $111.50 on Friday.

They surged another $4.25, to $118.25, on Wednesday after U.S. District Court Judge ordered the Department of Education to decide by July 31 its position on a 30 basis point fee that is charged on Sallie Mae's securitized loans.

Although the decision didn't resolve the fee issue, "at this point the burden appears to be on the Department to come up with an argument why the off balance sheet loans should be subject to fee," said Leslie Nelkin, analyst at Furman Selz.

Mr. Nelkin, who estimated a victory on the fees would be worth about $1.20 a share, reiterated his buy rating on the stock based on the management presentation. He called the 15% annual growth rate "quite achievable" through greater cost controls and higher loan volumes.

Mr. Selz raised his earning estimate to $8.20 per share from $8.15 for 1997, and to $9.40 from $9.20 for 1998. He maintained his 12 month price target of $135.

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