BankAmerica Corp.'s shares lost perhaps their biggest fan Monday, when Thomas Brown of Donaldson, Lufkin & Jenrette cut the bank's rating to "neutral" and reduced his earnings estimates.
Ironically, that's the same rating that George Salem, an analyst at Prudential Securities who has been the biggest bear on BankAmerica's stock, arrived at Monday. Mr. Salem raised his rating, however, to "hold" from "sell" -- proof that opposing minds can find common ground, at least on Wall Street.
Those rating and estimate changes were only two of the opinion changes that bank stock analysts made Monday, as they got a better fix on third-quarter earnings.
Upgrades for BT, Chase
Most notably, Bear, Stearns & Co. upgraded Bankers Trust New York Corp. and Chase Manhattan Corp. to "strong buy," from "buy," and cut the rating on U.S. Bancorp to "hold," from "buy."
BankAmerica shares fell $1, to $45.75, in an otherwise very positive day for bank stocks. Bankers Trust's shares rose $1.25, to $81. Chase's shares were up 75 cents,to $37.25. U.S. Bancorp's shares inched up 12.5 cents, to $25.75.
BankAmerica's shares have barely moved during 1993, and they aren't likely to start climbing based on Mr. Salem's upgrade.
Mr. Salem hasn't changed his pessimistic view of the California economy, which he doesn't believe will rebound until 1995 at the earliest. He sees no revenue growth for BankAmerica in 1994. While he boosted his 1994 earnings estimate to $5 a share, from $4.25, that profit will come primarily from a reduction in the loan-loss provision, he said.
"The company is emphatic that they weren't going to raise the loan-loss provision," said Mr. Salem. BankAmerica officials said they have "several hundred million in excess, unallocated reserves" to draw on, he added.
Mr. Salem's 1994 earnings estimate isn't far from Mr. Brown's revised figure. The Donaldson Lufkin analyst cut his 1993 estimate for BankAmerica's per-share earnings to $4.80, from $4.90, and his 1994 estimate to $5.40, from $5.90. In addition, the stock was removed from the firm's recommended list.
"I've become more realistic," said Mr. Brown.
He said the company's cost savings from the Security Pacific merger have been offset by a lack of revenue growth.
Recession Undercuts Estimates
When BankAmerica announced in 1991 that it would merge with Security Pacific Corp., Mr. Brown estimated 1995 earnings would be $8 a share. He and other analysts didn't figure on the deep California recession.
Lawrence Cohn, an analyst at PaineWebber Group Inc., cut his 1993 earnings estimate for BankAmerica to $4.95 a share, from $5.04. He maintained his "buy" rating.
Carla A. D'Rista, a Bear Stearns analyst, said she boosted her rating and 1993 earnings estimate on Bankers Trust because she expects it to benefit from "an unusually strong trading environment" for the next two or three quarters.
She estimated that half of Bankers Trust's revenues stem from trading, which means that the New York bank stands to gain more than other banks.
Bank Stock Values
Ms. D'Rista said she expects Bankers Trust's earnings per share to reach $11.15 this year, 35 cents higher than her previous estimate. She did not change her 1994 earnings estimate of $10.40. Based on that estimate, the shares sell at 7.5-times 1994 earnings.
"That's way too cheap," said Ms. D'Rista.
Chase Manhattan, said Ms. D'Rista, is another unappreciated stock. Shares sell at 1.1-times book value, the lowest premium among money-center banks.
Recently, the company raised $746 million in equity and announced that it had sold $725 million of foreclosed property. "Those have heightened the visibility on ongoing earnings," Ms. D'Rista said.
Lawrence Vitale of Bear Stearns cut his rating and estimates on U.S. Bancorp because growth in per-share earnings is slowing. He estimated that profits would grow 6.1% in 1994.Ratings Scorecard Prudential SecuritiesBankAmerica Upgraded to "hold" Donaldson, Lufkin & JenretteBankAmerica Downgraded to "hold"; 1993 and 1994 estimates cut Bear StearnsBankers Upgraded to "strongTrust buy"; 1993 profit estimates raisedChase Upgraded to "strong buy"U.S. Bancorp Downgraded to "neutral"; 1993 and 1994 estimates loweredSources: Company reports