Bank bond investors dumped Bankers Trust Corp. bonds Friday as financial turmoil overseas grew more dire. Reports that Brazil may devalue its currency and raise the country's interest rates by 20% deepened investors' concerns about the money-center's exposure overseas.
Bankers Trust's bonds were hurt more by the international crises than those of other banks with trading operations in Asia, Russia, and Latin America.
But investors have been much more skittish about Bankers Trust since it disclosed that it would report a net loss of about $200 million in the third quarter as a result of trading in Russian and other emerging-market securities.
Profitability in the company will suffer further because of higher loan- loss provisions, said Joseph J. Labriola, head of the corporate bond department at PaineWebber Inc. For example, Bankers Trust is taking a $100 million provision against potential loan losses tied to Asian and Russian credits, Mr. Labriola said.
Bankers Trust spreads-the difference between the yields of its bonds and the yield on Treasuries-widened by as much as 25 basis points on Friday compared with those on Citicorp bonds, which gapped out by 10 basis points, and Chase Manhattan Corp., which opened up by 15 basis points. Mr. Labriola said Bankers Trust's 10-year bonds are as much as 175 basis wider than a year ago. The spreads have widened by almost 100 basis points in the last three or four weeks.
He expects more investors to sell as reports about Latin America become more unsettling.
Bankers Trust has whittled its exposure in foreign markets, said Mr. Labriola. Its nonbank acquisitions are paying off, and the company has become more disciplined about cost controls, he added.
Bankers Trust's fundamentals have not "materially weakened any more than that of the company's peer group," said Mr. Labriola.
"For investors that continue to hold money-centers and are reasonably comfortable with risk, we recommend that they strongly consider swapping into Bankers Trust, especially in this meltdown environment."