Ripples from the crisis in the subprime mortgage sector hit shares of Hibernia Corp. Thursday as an analyst cut his rating and estimates, citing the bank's exposure to bankrupt United Companies Financial Corp.

Christopher Mutascio of Legg Mason Wood Walker cut his 1999 earnings estimate to $1.19 a share, from $1.25, sending the stock down 25 cents a share, to $15.8125, on a day when most stocks fared well. He cited two unsecured loans by Hibernia to the subprime lender, totaling $33 million.

United Companies filed for bankruptcy protection this week, casting into doubt the full collectibility of its $1.2 billion of debt. Mr. Mutascio, who also cut his 2000 earnings estimate for Hibernia to $1.33 a share, from $1.37, and reduced his rating to "market perform" from "outperform," said Hibernia may not collect on the loan. He said the company would have to boost its loan-loss provision to $58 million from $44.5 million to maintain a reserve ratio of 1.20%.

Lana Chan, banking analyst at CIBC Oppenheimer, said she too would review her rating for the banking company and called its exposure to United "clearly a big issue." United Companies is one of several subprime specialists that ran into trouble last year when the market for their securitized debt dried up. Also filing for protection this week was the fast-growing thrift holding company Wilshire Financial Group, and some expect high loan-to-value specialist First Plus Financial Corp. to file soon. (See story on page 22.)

A spokesman for Hibernia said of its loans that it was "evaluating the situation and working actively to bring it to a good conclusion."

Hibernia, based in New Orleans, has several ties to United Companies, which is based in nearby Baton Rouge, La. The latter's chief operating officer and executive vice president, C. Geron Hargon, joined the company in September, 1996, after being chairman of Hibernia National Bank's south- central region.

Analysts said Hibernia is a big lender to small and middle-market companies in Louisiana and Texas, and Mr. Mutascio suggested that its credit problems could extend beyond United Companies. "The likelihood of a credit-quality deterioration is greater than a credit-quality enhancement, given Louisiana economic ties to the energy sector and the fact that we are in the height of the credit cycle," he said.

The analyst's verdict came as the Standard & Poor's bank index added 1.32%, the Dow Jones industrial average 2.06%, the Nasdaq bank index 0.67%, and the S&P 500 1.54%.

"There is still caution on the part of many investors," said Mark Fitzgibbon, banking analyst at Sandler O'Neill & Partners. "Additionally, there are many financial stocks, both large and small, that continue to hemorrhage from redemptions."

As a result, Mr. Fitzgibbon said, "there's been a strong preference for larger, more liquid bank and thrift stocks."

He said that, for the year to date, large cap bank stocks are up about 3% and small cap banks down about 3%. This creates opportunities in smaller cap financial stocks because it could spur takeovers, he said.

"Historically, whenever there has been a disparity between the price-to- earnings ratios between large and small cap banks, there has been an increase in merger activity," Mr. Fitzgibbon said.

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