Investors deserted Bankers Trust New York Corp. in droves on Monday, reacting to news of a projected first-quarter loss of $125 million.
Shares plunged $9.75 or 16% to $51.625, some 33% below the 52-week high.
The money-center announced late Friday that it would take the after-tax loss because of Latin American setbacks.
Analysts who had touted the bank's merits and dismissed concerns about emerging markets exposure quickly changed course, issuing a cavalcade of downgrades. In all, six brokerage firms cut Bankers Trust's ratings.
The news that Bankers Trust had serious Latin American and derivatives losses brought the shares of other money-centers down in sympathy. J.P. Morgan & Co. was hardest hit, falling $2.25 to $61.
Citicorp fell 25 cents, to $41.625. Chase Manhattan Corp. declined 75 cents, to $35.
The debt markets were just as unkind. Bond spreads on Bankers' 10-year notes jumped 10 basis points in the first hours of trading to 108.
Moody's Investors Service, which just last month downgraded Bankers Trust, on Friday placed the long-term rating of Bankers and its subsidiaries under review for another possible downgrade.
On Monday, Standard & Poor's Corp. changed Bankers' long-term outlook from stable to negative, while affirming its ratings.
"After successfully negotiating last year's market events, it is particularly surprising that Bankers Trust should be caught at this juncture," said Diane Glossman of Salomon Brothers Inc.
Raphael Soifer of Brown Brothers Harriman termed the bank's announcement "a bombshell."
"These developments, coming in the wake of the reverses in trading and derivative sales which occurred during 1994, mean that 1995 can now be nothing other than what football coaches euphemistically refer to as a 'rebuilding year.'
"Trading, market-making, and client risk management products, core businesses which have typically produced half to two-thirds of the firm's net income in recent years, are unlikely to be quite so profitable for Bankers Trust going forward," Mr. Soifer added.
Analysts placed the per-share impact of the loss between $1.50 and $1.65, and downgraded their earnings estimates accordingly.
Last week many analysts discounted rumors that a New York money-center would announce a major Latin America securities loss.
But in a statement released after the close of trading on Friday, Bankers Trust said the economic deterioration in many Latin American countries had caused an unspecified amount of losses.
Perhaps more ominous, the company also blamed the charge for a downturn in derivative products, the bank's bread-and-butter business.
"The corporation cannot predict when the environment will improve," Bankers concluded.
This statement "undermines the notion that Bankers Trust put its derivatives issues behind it at yearend with its consent decree with the New York Federal Reserve and the Securities and Exchange Commission and with several potential litigants," said Merrill Lynch & Co.'s Judah Kraushaar in a research summary titled "Back to Book."
The 16% drop in Bankers Trust stock brings the company's stock near to its end of '94 book value of $53.67, and the $51 book value Mr. Kraushaar predicted for the end of March.
Monday's close also represented the greatest 52-week high and low share price differential of any of the top 50 banks.
And Mr. Kraushaar predicted the stock still has a 10% to 15% downside, so the stock could soon be trading below book.
The only silver lining in the news, he added, is the prospect that Bankers' management may be shaken enough to institute a major restructuring.
Bankers Trust is known for its face-lifts, most notably in the mid-1980s when it abandoned commercial banking and embarked on an investment banking and trading strategy.
The bank has already said it would institute some reforms, emphasizing what it calls "relationship management."
That would appear shaky in light of the expected 10% work force cut that has been reported in some published accounts. The risk management sales force, which apparently is being cut, was supposed to lead the charge into relationship management, Ms. Glossman of Solomon Brothers pointed out.
Observers concurred that Bankers would likely maintain its high $4-per- share dividend.
Mr. Soifer of Brown Brothers called a cut in the dividend highly unlikely because of the bank's strong capital position.
"Management . . . would accept further rating agency downgrades in order to maintain the dividend as long as it believes that earnings will again cover the $4 payout in the foreseeable future," he said.
S&P also cited Bankers' strong capital base in keeping the bank's rating intact.
But Moody's said in light of recent events, Bankers Trust may have to restructure the company more than anticipated.
The Bankers' news dragged down the bank index. The S&P 500 index of banks declined 1.06%, compared with the overall S&P 500 increase of 0.10%.
Bank of Boston Corp., however, which has large Latin American operations, did not decline significantly, falling only 37.5 cents to $27.625.
Bankers' volume was 3.83 million shares, compared with average daily volume of 244,826 shares for the year to date.
Analysts suggested that J.P. Morgan's share price drop may be largely a result of market jitters.
Unlike Bankers, Morgan has a diversified array of products, and should maintain a smoother and more profitable earnings pattern near-term, Mr. Kraushaar said.