Lehman Brothers Inc. downgraded the shares of Bank of New York Co. on Tuesday, reviving investor fears about credit quality and prompting a minor selloff in the stock.
Bank of New York shares fell 25 cents, to $29.125, on a day when bank stocks and the rest of the market rallied.
Analyst James M. Rosenberg cut his rating on the stock to "neutral" from "outperform," citing both summer price appreciation and "the bank's recent misfortunes in its credit card business."
In June, Bank of New York stirred credit quality concerns by unexpectedly announcing a $350 million special provision to its loan-loss reserve to deal with problems in its credit card portfolio.
Mr. Rosenberg cautioned, however, that the bank's future rate of loss provisioning is likely to be "well below a normalized level of credit costs." As a result, he said, 1997 earnings "will be overstated in the neighborhood of 20 cents per share."
The analyst said he is assuming a 5% loss rate on the bank's credit card portfolio and a 0.30% loss rate on all other loans. But he pointed out that his card loss projection is "below the level this portfolio is likely to experience."
The main reason to own Bank of New York is its securities processing operations, which are expected to bring in 35% of the company's profits, Mr. Rosenberg said, but the value of that unit is already reflected in the current stock price. "Other banks provide more substantial upside potential," he noted.
Other analysts did not share Mr. Rosenberg's level of concern about credit card quality at Bank of New York.
"On a ratio basis, card deterioration is expected to plateau or rise marginally in the third or fourth quarter," asserted analyst Carla D'Arista of Friedman, Billings, Ramsey & Co., who has rated the company a "strong buy."
Analyst Katrina Blecher of Gruntal & Co. downgraded the company in early September, based on its stock price and revenue concerns, but she termed the company "overreserved" against potential losses.
In other rating news, Lehman Brothers also cut Comerica Inc. Tuesday from "outperform" to "hold," based on price. Analyst Michael Mayo emphasized that he was still positive about the group but that Comerica 's stock has almost doubled in price since it was upgraded two years ago. The Detroit bank company was unchanged, at $51.50.
And Prudential Securities raised its target price on Bank of Boston Corp. to $65, from $60. Analyst Ruchi Maden said she expects the company to deliver greater cost savings from its recent acquisition of BayBanks Inc. Bank of Boston shares rose 12.5 cents, to $58.