Thrift stocks were jolted Wednesday when Lehman Brothers delivered a large-scale downgrade to the savings and loan industry.
Citing concerns about profits, analyst Bruce W. Harting sliced ratings on 11 thrifts, including H.F. Ahmanson & Co., which fell $3.875, to $57.875; Charter One Financial Inc., down $3.75, to $57.125; Golden West Financial Corp., off $3, to $89.125; and Long Island Bancorp, off $1.625, to $46.125.
"We cannot recommend buying these stocks because of current (interest) rate uncertainty," Mr. Harting said.
Charter One Financial, based in Cleveland, was also hit, with a fourth- quarter earnings downgrade by Piper Jaffray. But analyst Steven R. Schroll maintains the company as a "strong buy" because of its discount to peers.
The revisions added momentum to a selloff in the financial sector that began Tuesday when Judah S. Kraushaar of Merrill Lynch & Co. cut his 1998 earnings estimates for several money-center banks.
Most bank stocks fell Wednesday, with some of the biggest dips by Bankers Trust, off $3.5625, to $108.3125; Northern Trust, down $2.125, to $66.50; and Wells Fargo & Co., dropping $6.375, to $321. A few banks managed a late-day recovery, including J.P. Morgan, up $1.0625, to $112.
The Standard & Poor's bank index was off 1.37%, and the Dow Jones industrial average fell 0.05%. The Nasdaq bank index dipped 1.73%, and the S&P 500 fell 0.26%, as fears about profits found their way into several industry sectors.
Banks and thrifts are under stress from a continued flattening of the Treasury yield curve. The narrowing of the spread between long- and short- term interest rates puts pressure on earnings-especially from mortgages.
The spreads have narrowed because the U.S. dollar is surging against currencies of countries with weakened economies, raising concerns that the economy will slow here.
Mr. Harting also cut his ratings for Andover Bancorp, off 25 cents, $38.25; Astoria Financial Corp., down $2, to $55; Flagstar Bancorp., off 62.5 cents, to $19.375; Haven Bancorp, down 25 cents, to $22St. Paul Bancorp, off $2, to $24.125; and TR Financial, down $1.50, to $31.375.
The downward pull was so strong that positive words appeared to have limited impact.
Shares of GreenPoint Financial were down 50 cents, $72.25; People's Heritage dipped 50 cents, to $43.375; Sovereign Bancorp was off 18.75 cents, to $20.4375; and Washington Mutual fell $1.25, to $61.6875, despite Mr. Harting's decision to reiterate "buy" recommendations.
BB&T Corp. was off 87.5 cents, to $61.375, after Interstate/Johnson Lane raised its long-term rating to "buy" from "neutral."
The Winston-Salem, N.C., banking company "is a quality institution paired with a very attractive franchise," said analyst John Mason of Interstate/Johnson Lane.
Golden State Bancorp fell $2.9375, to $34, after Jefferies & Co. initiated coverage with an "accumulate" rating and a $44 target price. "Shares of California banks and thrifts should do well in 1998 with little exposure to Southeast Asia, a strengthening economy, and benign interest rates," said Jefferies & Co. analyst Charlotte Chamberlain.
Other bank stocks found their slide exacerbated by adverse comments. Shares of WestAmerica Bancorp. fell by more than 5%, to $95 in the first hour of trading after Piper Jaffray revised its fourth-quarter earnings outlook to $1.28 from $1.31. Shares finished the day at $98, down $1.75.
In deciding to act on WestAmerica, "We looked at our model and did some talking to management," said Mr. Schroll of Piper Jaffray. Despite the revision, he still rates the San Rafael, Calif., bank a "strong buy," saying it is "one of the best-run" in the state.