Henry, thread,
Banks get a rare (once a century?<g>) "sell". ''The risks of owning bank stocks do not seem worth the returns'':
biz.yahoo.com
U.S. bank stocks drop on rare "sell" rating
NEW YORK, May 24 (Reuters) - U.S. financial services stocks fell on
Monday after a top Wall Street analyst made the unusual move of
recommending investors sell multinational bank stocks because of year 2000 computer concerns and other issues.
Stocks in such blue-chip issues as Citigroup Inc. (NYSE:C - news), Chase Manhattan Corp. (NYSE:CMB - news), J.P. Morgan & Co. Inc. (NYSE:JPM - news) and Bank One Corp. (NYSE:ONE - news) all tumbled when Credit Suisse First Boston banking analyst Michael Mayo warned that the millennium computer bug could cut banks' profits. Mayo also said that their revenues from capital markets are ''unsustainably high.''
The sell-off in the wake of the rare ''sell'' recommendation was not limited to the money-center banks, but spread to some larger regional banks and major brokerages, too.
In a research report, Mayo said that even if U.S. banks are fully prepared for the date roll-over -- forecast to create problems
as some computer systems interpret the new year as 1900 rather than 2000 -- they are still vulnerable to ''third party risk.''
''A Y2K problem with a bank in an emerging market country has the potential to cause glitches for banks in the United
States,'' Mayo wrote. As the year progresses, the millennium issue might also delay merger savings, productivity projects
and market-sensitive revenues, he said.
Because sell ratings are extremely rare on Wall Street, especially on such widely-held stocks like the multinational banks,
the downgrade spooked investors and bank and broker shares stumbled in New York Stock Exchange trading.
Fewer than 1 percent of all U.S. analysts stock recommendations are sells, whereas buy ratings account for about two-thirds
of the total, according to market research firm First Call Corp.
Chase shares fell $2.69 to $76.31, Citigroup fell $2.75 to $64.94, Bank of America Corp. (NYSE:BAC - news) dropped $3 to $64.69, J.P. Morgan lost $2.94 to $135.75, Bank One fell $2.31 to $57.50 and Wells Fargo (NYSE:WFC - news) eased $1.38 to $40.25.
Declines in bank stocks after the downgrade also hit the benchmark Dow Jones Industrial average, which shed 125 points to
10,704. The Nasdaq Composite fell 2.5 percent to 2456.
''The risks of owning bank stocks do not seem worth the returns,'' Mayo wrote in a research report. ''On the one hand,
improved global growth and greater financial services consolidation offer potential. On the other hand, risks related to Year
2000, capital markets, efficiency and asset quality create downside potential.''
While banks' computer systems were generally prepared for the millennium, next year still posed a threat because banks'
counterparties might not be ready, Mayo said. Some big banks also have said the capital markets business could fall off in
the last months of 1999, out of caution.
Stock and bond underwriting levels could slow regardless, because they are unsustainably high right now, Mayo added.
Much of the new capital markets business are old deals that were put off during last year's global market turmoil, he said.
''Activity in early 1999 has been overstated due to pent-up demand following capital markets turmoil in late-1998,'' Mayo
said. ''The level of stock and bond underwriting in the first quarter 1999 was the second best ever. Many banks said
specifically that their growth has been above trend.''
''We think banks may be the safest place to keep your money for the year 2000, it's the bank stocks we're worried about,''
Mayo said.
Brokerage stocks also fell on Monday. Merrill Lynch and Co. (NYSE:MER - news) stock dropped $3.19 to $71.94,
Morgan Stanley Dean Witter (NYSE:MWD - news) fell $3.88 to $91 and Lehman Bros Holdings (NYSE:LEH - news)
lost $3.31 to $52.25. |
