Banks’ Stocks Suffer Amid Credit Card Loss Concerns
Stocks of major banks that analysts believe are most threatened by losses from delinquent consumer loans dropped Thursday after the Bank of New York announced it was setting aside funds to cover potential credit card losses.
After the bank’s surprise announcement, Wall Street analysts lowered ratings and cut earnings estimates on the Bank of New York and others.
The Bank of New York said Wednesday evening that it will establish a $350-million reserve for future credit card losses.
Its stock fell $1.25 to $51.25 in consolidated trading Thursday on the New York Stock Exchange. Banks also taking a fall were Chase Manhattan Corp., which dipped $1.50 to $69.50, and First USA Inc. dropping $2.50 to $54.50.
Mark Alpert of Alex. Brown & Sons and Frank DeSantis of Donaldson, Lufkin & Jenrette Securities Corp. were among those lowering ratings on Bank of New York. Alpert went to neutral from buy and DeSantis cut Bank of New York to market performer from outperformer.
However, Kate Blecher of Gruntal & Co said Bank of New York could be bought on weakness, while Ronald Mandle of Sanford C. Bernstein Co. reiterated a buy rating.
Analyst George Salem of Gerard Klauer Mattison Inc., one of the first to sound a warning about rising credit card losses, went further than most and lowered ratings on Bank of New York, Chase Manhattan Corp. and Citicorp to hold from buy.
He also lowered earnings estimates for Bank of New York, Citicorp, Chase Manhattan, First Chicago NBD Corp. and Banc One Corp. The analyst said the credit card threat to bank earnings is “escalating rapidly.”
But he said there are several bank companies that have little or no such exposure. Of these, he reiterated buy ratings on BankAmerica Corp., J.P. Morgan & Co., NationsBank Corp., Norwest Corp. and Wells Fargo & Co.
Salem again pointed to a rise in personal bankruptcies in the United States as a culprit in the credit card deterioration.
Salem also said there is increasing reluctance by buyers of securities backed by credit card loans to purchase the paper.
He said banks that securitize heavily--such as Citicorp, First Chicago Corp., Chase Manhattan, Banc One and NationsBank and a group of companies called the “monolines”--face special risks.
