Baltimore Bancorp suffered another blow yesterday as Standard & Poor's Corp. slashed its rating of the company's subordinated debt and uninsured certificates of deposit, but the company shrugged off the rating agency's criticism and said it might be profitable this quarter.
Standard & Poor's cut the rating of the parent company's subordinated debt to Double-C from Triple-C-plus and cut the rating of the Bank of Baltimore's uninsured CDs to Triple-C/Single-C from Double-B-minus/Single-B.
But S&P stressed that federally insured deposits -- the vast majority of the bank's deposit base -- are not affected. Approximately $7 million of long-term debt is affected.
S&P analyst Robert Swanton said the move was prompted by the company's big losses on real estate loans during the past two quarters -- especially the company's $25 million addition to a previously announced $70 million fourth-quarter loss after federal banking regulators reviewed the company's books.
"In fact, it's about the lowest commercial bank rating we have," Mr. Swanton said. "I think it suggests the severity of the problem."
Mr. Swanton said the rating of the subordinated debt suggests that Standard & Poor's believes the company will need an economic upturn to insure timely payments.
"The holding company debt is at such a level you need positive events to occur," he said. "Even the status quo leaves you vulnerable."
But local banking analysts contended that Standard & Poor's is behind the curve, and that the company's prospects are fairly decent for coming quarters. Company treasurer David L. Spilman agreed.
"Our expectation is that we can be profitable in the first quarter," Mr. Spilman said.
Ferris, Baker Watts, Inc. analyst John A. Bailey wasn't impressed by S&P's action. "The company has a bad announcement and S&P lowers the rating. By then, who cares?" he said. "It's not indicative of much."
Elisabeth A. Hayes, an analyst at Chapin, Davis in Baltimore, said the S&P move would only hurt Baltimore Bancorp if it went to the financial markets to issue bonds. Then, the low rating would force the company to pay higher interest rates.
Mr. Spilman said the company doesn't plan to try to raise capital for at least several months and is leaning toward a stock offering when it does.
"We would be foolish to think we have access to the capital markets today," he said. "We have to earn our way" into Wall Street's good graces by returning to profitability, he said.