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Regionals under pressure
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June 16, 2000: 3:46 p.m. ET
Downgrades add to Wachovia, UnionBanCal troubles, depresses Dow
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NEW YORK (CNNfn) - Regional banks Wachovia and UnionBanCal found themselves under increased pressure Friday after analysts at several institutions downgraded their ratings on the already depressed stocks.
Both Wachovia and UnionBanCal warned of lower second-quarter earnings on Thursday. And on Friday three analysts downgraded UnionBanCal, while two other lowered their ratings on Wachovia.
The result was a ripple effect that weakened the regional banking sector and reverberated by forcing the Dow into a decline.
During mid-afternoon trading, Wachovia (WB: Research, Estimates) lost 2-1/16 to 55, and UnionBanCal (UB: Research, Estimates) lost 8-1/14 to 20-7/16. In addition SunTrust Banks Inc. (STI: Research, Estimates) lost 3-9/16 to 50-5/16, BB&T Corp. (BBT: Research, Estimates) slipped 1-1/8 to 25-3/4 and KeyCorp. (KEY: Research, Estimates) decreased 1-1/16 to 18-5/8.
"We are starting to see the results of the Fed rate hikes," said Campbell Chaney, analyst with Sutro & Company, who downgraded UnionBanCal from a buy to a hold. "It has two effects, one is the slowdown of the economy and specific to the banking industry, there are those borrowers that are having trouble meeting their loan payments, and an increase in bankruptcies."
Wachovia, the third-biggest Southeastern regional bank, warned on Thursday warning that those rising short-term interest rates may force it to reports second-quarter and full-year profit figures that fall short of analysts expectations.
 In a brief statement, the company said that the bank's earnings could be as low as $1.32 for the quarter, below the $1.34 average estimate of analysts polled by earnings tracker First Call. Earnings for 2000 -- forecast by analysts to be $5.46 a share -- will also likely fall short of estimates. The bank earned $1.22 a share in last year's second quarter and $4.97 in 1999.
Goldman Sachs said on Friday it lowered its 2000 earnings estimate on Wachovia Corp. to $4.65 a share from $5.45 and analyst Lori Appelbaum also cut her 2001 view to $5.60 a share from $6.00.
UnionBanCal, a bank holding company based in San Francisco, warned of lower-than-expected second quarter earnings of 77 cents a share-to-82 cents a share, due to a drop in asset quality that caused an increase in provisions for credit losses.
Donaldson Lufkin & Jenrette (DLJ: Research, Estimates) cut Wachovia's 2000 estimate to $5.30 a share from $5.50 a share, and reduced its 2001 estimate to $5.70 a share from $6.00, after the bank warned of lower-than-expected results and higher credit provisions.
 Chaney said the bigger banks are not immune to interest concerns, but because they are generally more diversified, and not heavily reliant on lending the rate hikes would not have exactly the same effect.
"[Big banks] have investment banking ventures and links to the capital markets, " he said. Does that make them better or worse? It's a tough call," he added.
"We won't know if there will be a turn around soon until the Fed stops raising rates," said Chaney. "And it does take a while for the full effect of the rare hikes to be felt." 
- Reuters contributed to this report
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