BankAmerica Corp., which last week announced it would face major loan losses in the second quarter that ends June 30, yesterday had its credit rating reduced by a major Wall Street firm that specializes in analyzing banks.
A spokesman for BankAmerica, the nation's second-biggest bank company with assets of $117.9 billion, confirmed that Keefe, Bruyette & Woods Inc. had lowered the company's rating from "C" to "C/D."
The bank company's stock price fell 62 1/2 cents in trading on the New York Stock Exchange to close at 19 1/8 per share. More than 1.35 million shares changed hands.
Experts said the downgrading in BankAmerica's credit rating will have a minimal impact on the big bank's ability to raise the funds it needs. Unlike most other giant U.S. banks, BankAmerica's principal subsidiary, Bank of America, gathers most of its funds from consumer depositors and raises little cash in the so-called money markets.
Nevertheless, word of the credit rating reduction triggered a minor "flight to quality" in bond and money market trading.
William V. Sullivan Jr. -- vice president of Dean Witter Reynolds Inc., the giant securities firm -- said some investors shunned bank certificates of deposit in favor of Treasury securities. The normal spreads between the rates paid by banks issuing certificates of deposit and the rates on Treasury bills widened, as more investors demanded Treasury bills. That drove up the prices of the bills and reduced the effective rate of interest.
Sullivan said the spread widened by about eight to 10 basis points (a basis point is 1/100th of a percentage point) between one-month Treasury bills and one-month certificates. In the three-month area, Sullivan said, the spread widened by 15 to 16 basis points.
BankAmerica has been beset by problem loans and other difficulties for several years and hoped to make a major recovery this year. But last week its president, Samuel H. Armacost, said losses will be higher than expected in a number of portions of the loan portfolio, "particularly in the foreign, commercial real estate and agricultural segments."
As a result, Armacost said, the big bank company will report little, if any, profit in the second quarter. In the fourth quarter of last year, profits were hit hard by a $95 million loss from a pool of mortgage-backed securities for which Bank of America served as escrow agent and trustee.