Money-Centers Quake After Merrill Analyst Cuts Estimates

Bank stocks shuddered and helped lead the markets lower Tuesday after a prominent analyst slashed his profit estimates for money-center companies.

Among the decliners were BankAmerica Corp., by $3.6875, to $69.125; BankBoston Corp. $2.375, to $94.625; Chase Manhattan Corp. $5.25, to $107.1875; and Citicorp $7.375, to $123-all after 1998 earnings downgrades by Judah S. Kraushaar of Merrill Lynch & Co.

Mr. Kraushaar also said fourth-quarter earnings reports would be "sloppy," padded by securities gains and other one-time items.

The Merrill analyst's move highlighted how concerns are growing that bank performance will suffer this year. There are still some positive views; on Monday analysts at Credit Suisse First Boston initiated coverage of Citicorp with a "buy" recommendation, saying concerns about overseas woes were "overdone."

But Mr. Kraushaar maintains otherwise, reducing his rating on Citicorp to "accumulate" from "buy."

His report, issued before Tuesday's market opening, prompted a flood of sell orders that delayed trading for 20 minutes in both Citicorp and Chase stock.

Mr. Kraushaar's words carry weight because Merrill Lynch has the biggest retail stock sales force in the industry.

"It's a knee-jerk reaction," said Phil Cuthbertson, head trader at Keefe, Bruyette & Woods Inc. "People are saying now is not the time for me to be a buyer."

Indeed, even banks that Mr. Kraushaar spoke well of were caught in the downdraft. Bank of New York, for one, fell 68.75 cents, to $57.875. Mellon Bank Corp. was down $1.0625, to $61.0625, and Republic New York Corp. was off $1.8125, to $62.9375.

Thrifts also dropped on fears of reduced profits because low interest rates invite large-scale refinancings of mortgage loans. H.F. Ahmanson & Co. fell $2.25, to $61.75; Dime Bancorp, 93.75 cents, to $27.50; and Washington Mutual, $1.8125, to $62.9375.

Money managers said the day was emblematic of how 1998 could shape up, with investors having to be nimble because uninterrupted upward momentum is over. "This year timing will be very important," said Elizabeth Bramwell, president of Bramwell Capital Management, New York.

For the day, the Dow Jones industrial average fell 0.91%, and the Standard & Poor's bank index was off 2.62%. The Nasdaq bank index fell 1.33%, while the S&P 500 shed 1.07%.

Chase Manhattan and Citicorp took the biggest hits from Mr. Kraushaar, who reduced his 1998 earnings estimates for both banks by 50 cents, to $9.20 and $9, respectively. He reduced BankAmerica and BankBoston each by 10 cents, to $4.75 and $6.20, respectively.

"We are increasingly worried over the possible side effects of global deflation both on future credit costs and trading profits," Mr. Kraushaar said.

Not everyone was so bearish. Shares of First Republic rose $1, to $31.75, after Thomas K. Brown of Donaldson, Lufkin & Jenrette initiated coverage with a "buy" rating and placed the stock on his action list.

Mr. Brown said the $2.3 billion-asset San Francisco institution, which recently converted to a commercial bank charter, fosters "an entrepreneurial sales culture" and is headed by "an experienced and energetic management team."

Another thrift, United Tennessee Bancshares, gave up ground after shooting up by 50% Monday, the day of its initial public offering. Its shares closed Tuesday at $14.125, down 62.5 cents but still up from the $10 offering price.

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