Seeing a profit-taking opportunity, PaineWebber Inc. analyst Thomas McCandless cut his rating on Keycorp to "unattractive" from "neutral" on Wednesday. He also cut credit card specialist Capital One Financial to "attractive" from "buy."

Capital One rose 37.5 cents to $20.125, and Keycorp fell 50 cents to $31.125.

"We're getting more concerned, about the risks from a weaker economy, particularly in the fourth quarter," said Mr. McCandless.

A self-described cautious bull, Mr. McCandless said his concerns about a slower-growing commercial and industrial lending environment in light of the current robust prices for bank stocks has induced downgrades in the past four months.

However, those few banks well positioned to sustain themselves through a weak economy have received upgrades from PaineWebber.

Mr. McCandless Wednesday upgraded Wachovia Corp. to "attractive" from "neutral," because the Winston-Salem, N.C.-based bank will have "more arrows in its quiver" than money-centers or larger regionals if a slowdown in commercial and industrial lending comes along, said Mr. McCandless. Wachovia rose 25 cents to $35.875

Most banks, however, present short-term revenue problems in a weakening economy, said Mr. McCandless.

"At Keycorp, the stock price is up, and we've got some concerns about their short-term revenue generation capability in the event the economy slows," said Mr. McCandless.

Keycorp is doing all the right things strategically, he said, but because the Cleveland-based bank's strategies don't kick in until 1996, "they may run into a little difficulty.

Similar concerns about the economy precipitated PaineWebber's downgrade of Capital One and an earlier downgrade of another credit card specialist, MBNA Corp.

Mr. McCandless cited a deterioration in industry credit fundamentals and a likely difficulty in sustaining the current multiple expansion in the downgrade of Capital One.

Earnings estimates for Capital One remain unchanged at $1.90 for 1995 and $2.30 for 1996.

To be sure, not everyone feels both Keycorp and credit card companies are precariously perched.

Some analysts maintained a positive outlook on credit card companies, saying credit quality will not have as adverse an impact on earnings.

Others said Keycorp's diversified geographic franchise, margin stabilization, share repurchase, and higher price to earnings potential were all positive signs.

Despite the relative surge in bank stock prices, Mr. McCandless does not have negative ratings on all bank stocks.

In addition to an upgrade at Wachovia, PaineWebber upgraded Fifth Third Bancorp in May.

PaineWebber's 12 month price target for Wachovia is $41.

Separately, the price of Republic New York Corp.'s stock has surged 10.5% from $52.375 since June 26, when it was first announced that the bank would join the Standard & Poor's 500.

Analysts said the boost reflected early activity by index funds prior to the listing.

S&P said a gain of approximately 10% was fairly typical for a company prior to joining the index.

Republic's stock fell $1 to $57.375 on Wednesday.

Also on the index are all the money-centers and 22 banks that, like Republic, are categorized by S&P as regionals.

While analysts said that being added to the index could increase the volatility of the stock, it had an obvious short-term benefit and in the long run doesn't change the company's valuation.

"Over the long run, it'll trade where it would have traded anyway," said Oppenheimer & Co. analyst Chris Kotowski. "The one benefit is that it makes the stock a bit more liquid."

Republic replaces Lotus Development Corp., which was dropped from the index after it was acquired by International Business Machines Corp.

In other news, Smith Barney Inc. chose BankAmerica Corp. for its list of outperformers in the next year, while Lehman Brothers included First Commerce Corp.

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