Analysts downgraded their outlooks for companies as varied as Bank of America Corp. and TCF Financial Corp. Thursday, citing credit-quality concerns and price.
Bank of America continued to slide as the market reacted to its negative outlook on credit quality. Shares of the Charlotte, N.C., banking company gained during the morning, reaching $42.9375, before falling again. The stock closed down 12.5 cents, or 0.3%, at $41.875. Catherine Murray of J.P. Morgan & Co. downgraded the stock to "market performer" from "buy." Bank of America said Tuesday that its fourth-quarter net chargeoffs could be more than double the third-quarter total, largely because of its exposure to a single large credit widely believed in the market to be part of a $1.5 billion loan to Sunbeam Corp.
Ms. Murray wrote in a research report that Bank of America's stock price already reflects some uncertainties about asset quality, but she added that continuing uncertainties on the issue would "limit stock performance over the next several quarters" and "overwhelm possible improvement in core operating trends."
Andrew Collins, an analyst of ING Barings who put the Bank of America shares on "hold" Oct. 16, said that the company should have disclosed the credit-quality trend much earlier and, thus, has lost some credibility on Wall Street.
Many of Bank of America's loans are in the retail sector, which is "not where you want to be in a slowing economy," he said. "There are better places to put your money in the financial sector."
Other analysts were a little easier on Bank of America. Lawrence W. Cohn at Ryan, Beck & Co. agreed that the bank's management should have been more up-front about the credit-quality issue but said that the company can afford the current chargeoffs. He reduced his rating Thursday to "buy" from "strong buy."
Thomas D. McCandless, an analyst at CIBC World Markets, reiterated his "strong buy" rating on the company.
Bond analysts also hold a more positive view of Bank of America. Rosemarie Conforte of Moody's Investors Service said she was "comfortable with our high rating," particularly with respect to the company's earnings.
Moody's affirmed its Aa2 rating of Bank of America senior corporate debt Thursday afternoon. "Earnings from core sources are more than sufficient to cover credit costs associated with weakening credit quality," the ratings agency said.
Meanwhile, Joseph C. Duwan, an analyst at Keefe, Bruyette & Woods Inc., downgraded shares of TCF Financial of Minneapolis on Thursday, to "market perform" from "outperform." The downgrading was "based solely on valuation," Mr. Duwan wrote in a research note.
Speaking at a CIBC World Markets banking conference in New York on Wednesday, William A. Cooper, chairman and chief executive officer of TCF, presented a strong picture of his company's performance. But analysts said a 100% loan-to-deposit ratio and "top-line revenue growth" from de novo expansion come at a price.
Jon G. Arfstrom, an analyst at Dain Rauscher Wessels, said that a company like TCF should trade at a premium and his "strong buy" rating reflects that. At a price-earnings multiple of 14, TCF has not reached its price ceiling, he said.
TCF shares fell 50 cents Thursday, or 1.25%, closing at $39.5625.