Prudential Securities Inc. initiated coverage of Bank of America Corp. on Tuesday with a "hold" rating, expressing concern about the banking company's "giant size and overwhelming geographic reach" as well as its asset quality.

"If the balance sheet is the heart of a bank - well, this one needs a little diet and exercise," analyst Nancy A. Bush wrote in a report. Ms. Bush, who joined Prudential this year, said it is essential to include Bank of America on her coverage list of large-capitalization banks. "Bank of America will show us whether it is possible for a megabank to be profitable," she wrote.

Though nonperforming assets amounted to only 0.95% of total loans in the second quarter, Ms. Bush said she gets a "whiff of credit-quality issues." With its mortgage loans, "BAC is still more a book-and-hold company," she wrote, a stance that is "becoming passe" now that many banks sell most of their mortgages into the secondary market.

So far, she wrote, the company's "overwhelming geographic reach isn't paying off in terms of earnings growth or quality." She said she expects earnings of $5.23 per share for this year and $5.82 for 2001. She put a $64 target price on the stock, which rose 43.75 cents Tuesday, or 0.77%, to $57.

Ms. Bush said she falls in the middle on Bank of America, between analysts who consider the stock a good buy and those who believe the giant company is going to "bring down the financial system." She said she sees Bank of America as a company for which "damage done to customer service and reputation during the consolidation process was material."

The company's 1.8 consensus rating on Thomson/First Call's one-to-five, buy-to-sell scale, suggests that most in the market view the stock more favorably. James Schutz of Stephens Inc., in Little Rock, Ark., said he sees no sign of asset-quality problems, considers the company's geographic diversity a major advantage, and thinks the stock is seriously undervalued. He has a "buy" rating on the stock and a 12-month target price of $75.

Chris Blum, an analyst at Edward Jones in Des Peres, Mo., said he is equally positive and gives Bank of America a "strong buy" rating because it is a good long-term investment. He pointed to the growth potential in investment banking and management, which would increase the company's fee-based income.

Bank of America's shares fell sharply in early summer, from $61 on June 2 to $43 on June 30, but have gradually gained ground since then.

Mr. Schutz said the selloff may have been related to the departure of key executives after the company's takeover of the former NationsBank's Montgomery Securities unit, weakening the equities and advisory businesses. But he said the company has put that problem behind it and the stock can be expected to perform better. Ms. Bush said the June decline was in reaction to an announcement by Wachovia Corp. that it had credit-related problems. This caused concern that Bank of America's big syndicated-loan business could be vulnerable.

Elsewhere, Donaldson Lufkin & Jenrette Securities Inc. raised its earnings projections and target for Goldman Sachs Group Inc. in response to the latter's deal for Spear, Leeds & Kellogg. "If the future is tighter margins," DLJ said in a report, "firms will need scale and trading technology to replace human capital."

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