BankAmerica Corp.'s stock has regained some of the ground it lost last week after the company's earnings report raised a red flag about asset quality.

BankAmerica's shares stood at $42.625 in late trading Tuesday, up 62.5 cents in a declining market. The rise came after a 25-cent gain Monday.

The shares had plummeted $2.25 last Thursday, to $41.75, after the San Francisco-based company announced an increase in intangible assets known as

goodwill - the gap between the actual value and book value of assets being acquired in a merger.

The unexpected rise in goodwill was seen as evidence that the quality of the portfolio being acquired in the Security Pacific Corp. merger is worse than suspected.

But a more sanguine view began to gain favor after BankAmerica officials met with analysts in New York on Friday.

These analysts said the drag on earnings from amortizing the intangible assets would be dwarfed by annual earnings in the range of $6 a share, and would be far outweighed by cost savings resulting from the bank's merger.

"I think the market overreacted," said Ronald I. Mandle of Sanford C. Bernstein & Co.

Amortization over 25 Years

Under the purchase-accounting method being applied in the merger, virtually all of the goodwill created by marking Security Pacific's assets to market value can be amortized over 25 years, Mr. Mandle said. The $800 million added in the quarter brought goodwill to $5.4 billion.

The increase represented only an $18 million increase, to $80 million, in the cost per quarter of amortizing the intangible asset, Mr. Mandle said.

"All things being equal, that would be 5 cents a quarter. But all things aren't equal," Mr. Mandle said. He said the impact on earnings would be even less than 5 cents per quarter.

Much of the increase in goodwill reflects decisions to add to assets being held for sale, he said. Once such assets are sold, he said, the nonperforming assets will be replaced by performing ones, improving earnings ratios.

Indeed, given the marginal impact of the goodwill, the drop in BankAmerica's share price created a buying opportunity, said Lawrence W. Cohn of PaineWebber Inc. He changed his hold rating on the stock to buy when the stock dipped below $42.

Thomas K. Brown at Donaldson, Lufkin & Jenrette Securities Corp. said investors and some analysts misunderstood the purchase-accounting method. He said a more accurate measure of credit quality than the change in goodwill was the $300 million increase in nonperforming assets. That decline in asset quality is not alarming, given the weakness in the southern California economy. he said.

Moreover, he pointed out, Bank-America's ratio of tangible equity to assets actually increased in the quarter, to 5.18% from 5.04%.

A Bearish Response

George Salem of Prudential Securities Inc. remained skeptical.

He said the increase in goodwill affirmed his bearish view of the economy. The main disagreement he has with the other analysts, he said, concerns the length of the state's recession.

"We're in the third inning," Mr. Salem said, arguing many more additions to goodwill could be in store. "Some of these guys think it's the eighth inning, that's the difference."

Meanwhile, Francis X. Suozzo of S. G. Warburg & Co. reacted to the earnings statement by saying the bank's long-term prospects were good, but that BankAmerica could be burdened by the deteriorating economy in the near future.

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