Wall Street's bottom fishers are beginning to angle for Bankers Trust New York Corp.
Hammered by months of horrific publicity about derivatives trading woes and news of the money-center's $157 million first-quarter loss, Bankers Trust shares have been hovering beneath $55 - down more than 25% from their 52-week high.
That spells opportunity for those who believe the worst is over at Bankers Trust. Indeed, the price jumped $1.50 to $56 in trading Wednesday.
Advocates say the first-quarter housecleaning has stabilized the company's finances and that the necessary steps are being taken to assure greater performance consistency. That being the case, they say, Bankers Trust shares should trade at something more than a shabby 12% premium over the book value of $50.04.
"The company's fundamentals are stable and expected to improve, and the stock is at the low end of the valuation range," said Ronald Mandle, an analyst with Sanford C. Bernstein & Co. Mr. Mandle has an "outperform" rating on Bankers Trust.
Investors play a chancy but potentially lucrative game when embracing out-of-favor stocks.
For example, investors who last year took positions in Mellon Bank Corp. while controversy swirled over its acquisition of Dreyfus Corp. were rewarded with a sparkling 33.1% trading rally in the first quarter of 1995. On the other hand, those who jumped on Banc One Corp.'s bandwagon a year ago were disappointed when the Ohio-based company's rate exposure subsequently worsened, culminating in a big fourth-quarter portfolio cleanup charge.
Indeed, many analysts remain cautious about Bankers Trust.
In explaining his "underperform" rating on Bankers Trust, Goldman, Sachs & Co. analyst Robert Albertson said the banking company faces big challenges in lessening its dependence on trading revenues, demonstrating consistent profitability, and adhering to a brisk turnaround schedule.
"All these questions are critical, and uncertainty surrounds each of them," said Mr. Albertson. "No one wants to miss a chance to buy at the bottom, but the bottom in Bankers Trust stock may persist for a while."
One closely watched indicator at Bankers Trust is the $1-a-share quarterly dividend. The 19 brokerage firms covering Bankers Trust expect the money-center bank to earn only $3 a share for the full year, according to First Call Corp., meaning the market expects the company to pay out more than it earns.
Management already has told analysts that it will recommend to the board of directors that the dividend be sustained.
Analyst Lawrence Cohn of PaineWebber Inc., who rates Bankers Trust a "buy," issued a report Tuesday asserting that the dividend "is secure." If he is right, the stock looks all the more attractive on account of its 7.5% ratio of annual dividends to current trading value. That compares with a 4% average dividend yield on bank stocks.
Mr. Mandle of Bernstein said he is encouraged by the cost-cutting targets set by Bankers Trust, which envisions $200 million of expense reductions this year and $275 million of reductions in 1996.
Austerity will help offset revenue declines stemming from a deemphasis of exotic derivatives products.
What is more, Mr. Mandle said, Bankers Trust clearly is not enmeshed in the sort of crisis that beset banks in the early days of this decade.
Bankers Trust is "comfortably capitalized," he said, and apparently has addressed its most serious problems in the space of a single quarter.
