Banks that reported losses on securities in their held for sale portfolios have already suffered a decline in stock price, but their troubles with securities valuation may be far from over, some analysts now say.

Because of the rules recently promulgated by the Financial Accounting Standards Board, under FAS 115, the fear is that the unrealized losses imbedded in banks' held-to-maturity portfolios may drive down bank stock prices still further.

"Banks' held-to-maturity portfolios have huge imbedded losses," noted Elizabeth Summers of Ryan Beck & Co. "These numbers could be significant. I wonder how institutional investors will view these securities portfolios."

Ms. Summers, who covers regional and superregional banks, said that the values of banks' held-to-maturity portfolios are easily found in regulatory 10-Q filings.

Under FAS 115 accounting, these portfolios are classified as investments and carried on the banks' books at amortized cost if held until the securities mature. Securities purchased with the intent to realize a short- term profit fall into the available-for-sale category and are placed in a trading account and carried at market value.

Ms. Summers noted a wide gap between the stated book value and current market value of the securities held to maturity by some of the banks she covers.

"At what point will institutional investors start focusing on this?" asked Ms. Summers. "Keep in mind I'm working with Sept. 30 numbers. They do not include the 75-basis-point rate increase (by the Federal Reserve) in November. It's entirely possible the numbers could be much worse."

Ms. Summers declined to identify which banks may face such problems.

Others said the imbedded losses are widely reported and that investors already have discounted them.

Dennis Shea of Morgan Stanley is one analyst who does not think the unrealized losses in banks' held-to-maturity portfolios will make much difference to investors now.

"(The losses) are widely known and have been picked up on by investors," Mr. Shea said. "Stock prices already have been discounted by the market."

The bigger problem, according to Mr. Shea, is the effect the losses have on banks' net interest margins.

"It's clearly been a problem," he said. "Available-for-sale, held-to- maturity, and derivatives books all held down net interest margins. It's a problem, but its a well-recognized problem."

Ronald I. Mandle of Sanford C. Bernstein & Co. does not consider the held-to-maturity portfolios a problem, either. He pointed out that at some banks, the losses may look large in and of themselves, but the overall size of the bank must be considered, as should the rest of its balance sheet.

"PNC had the biggest loss because it had the biggest portfolio," noted Mr. Mandle. "But you have to look at the figures in the overall context of the balance sheet."

He said PNC Bank Corp. had a held-for-sale portfolio that amounted to 6.8% of total assets and a held-to-maturity portfolio that amounted to 23.9% of assets.

Mr. Mandle pointed out that the maturities of these securities are more of an issue than the portfolio itself.

Many banks hold securities with short maturities that reprice quickly.

Ryan Beck's Ms. Summers agreed, noting that the problems in banks' held- to-maturity portfolios may be short-lived.

"A lot of banks invest in two- and three-year bonds," she said. "Those have been hardest hit. But the imbedded losses may be temporary. The portfolios could be underwater for one or two quarters."

Bernstein's Mr. Mandle said that at many of the banks with large held- to-maturity portfolios, core deposits and earnings have been improving as the values of securities and derivatives have been eroding.

"Core deposits become more valuable in a rising interest rate environment," said Mr. Mandle. "Most banks have positive mark-to-market adjustments. Companies with small mark-to-market adjustments have good core deposits."

PNC, he said, had core deposits equal to 35% of assets. Bank of America, with a held-for-sale portfolio equal to 5.1% of assets and a held-to- maturity portfolio equal to 3.9% of assets, had core deposits equal to 46% of assets, noted Mr. Mandle.

He also noted that First Interstate, with a held-for-sale portfolio equal to 0.2% of assets and a held-to-maturity portfolio equal to 26.3% of assets, had core deposits equal to 73% of assets.

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