Stock prices of banks with major credit card activities plunged Thursday in the wake of Bank of New York Co.'s decision to beef up its loss reserve amid falling loan quality.

Trading volume was heavy as investors rushed to sell shares of Citicorp, Chase Manhattan Corp., and First Chicago NBD Corp. as well as those of specialized card issuers like MBNA Corp. and First USA Inc.

The stock of Bank of New York itself was off $1.50 to $51 per share in late trading, a day after startling Wall Street with news that it will take a $350 million special provision against rising card delinquencies. The move was seen as exerting pressure on other banks to come to grips with their own credit card delinquencies. (See related story, page 26.)

"Card-related risks to bank earnings are escalating rapidly," said veteran bank analyst George M. Salem, who warned last week in a report that heavy card marketing efforts over the past several years lacked proper underwriting and were coming back to haunt the industry.

Citicorp shares tumbled $1.125 to $81.125; Chase Manhattan was off $1.50 to $69.50; First Chicago NBD Corp. fell 87.5 cents to $39.75; MBNA slid 75 cents to $27.875; and First USA dropped $2.50 to $54.50.

The selloff helped drag the Standard & Poor's bank index down 1.32% on a day when the Dow Jones industrial average gained 11.08 to 5659.43.

Mr. Salem on Thursday dropped his "buy" ratings on Bank of New York, Citicorp, and Chase Manhattan to hold status. He lowered his earnings estimates on those banks and also on First Chicago NBD and Banc One Corp.

He said he felt that "June 19 will be regarded as the day when investors realized that card loan quality presented a clear and present danger that could play havoc with stock performance and earnings."

For investors, Mr. Salem said, Bank of New York's status as a big player in the card business with respected management means "that all other players have to prove they have no negative surprises up their sleeves."

Another industry analyst, Lawrence W. Cohn of PaineWebber Inc., said, "Bank of New York's announcement was particularly surprising in light of how adamant and convincing they were last December that card loan chargeoffs would peak in the first quarter.

"There has obviously been a very significant deterioration in the outlook," he said. "Clearly, this is not what they had hoped for."

Mr. Cohn and Gary J. Gordon, PaineWebber's consumer finance company analyst, have become increasingly cautious during the past year about the outlook for credit quality and warned of the danger to earnings and stock valuations.

Others, however, remain positive on the outlook. "This was a special event for Bank of New York, totally unrelated to what is happening elsewhere in the card business," asserted Moshe A. Ohrenbuch of Sanford C. Bernstein & Co.

He added that the loss experience at Bank of New York has not been worse than the rest of the industry - only worse than the bank's own expectations. "They expected (the chargeoffs) to be down, and they are going to be up, but not more so than the rest of the industry," Mr. Ohrenbuch emphasized.

Mr. Cohn, however, said he believed the negative market reaction was based on Bank of New York's answers to several questions about the sale this week of its $3.4 billion AFL-CIO member card portfolio to Household Finance.

"They said very explicitly that this is a seller's market for credit card portfolios," Mr. Cohn said. "When they were asked if they would look to buy other portfolios to rebuild the volume they are losing because the union moved its account, the response was very clearly no.

"But they said there will come a time in the not too distant future when it will be a good time to buy," he said. "I think a lot of people felt that meant other credit card issuers are going to have problems, and that the problems are going to get worse."

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