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To: GST who wrote (112746)	12/14/2000 8:57:38 AM
From: H James Morris	Read Replies (1) \| Respond to of 164684

>HJ More buyout buzz around ISLD Gst, I've been out of ISLD for quite sometime. I have been nibbling on LU recently on the buzz about a buyout. Anything over 16-17 would be fine with me.:-)

To: GST who wrote (112746)	12/14/2000 4:07:05 PM
From: H James Morris	Read Replies (1) \| Respond to of 164684

Gst, short the sluts. >As Chase Manhattan (CMB:NYSE - news) and J.P. Morgan (JPM:NYSE - news) sank following Thursday morning's earnings warning, investors were wondering which banks and brokerages could have the same problem. They probably won't like the answer. I'm an Alligator Chase scuttles lower "Line them up. All of them," says Steve Eisman, banks analyst at CIBC World Markets, adding that he expects the fourth quarter to bring weak earnings across the sector. "Weakness in capital markets has implications for the general investment banking sector." Eisman points to Bank of America (BAC:NYSE - news) and Goldman Sachs (GS: - news), the latter of which is scheduled to report earnings next week, as exposed to slowing capital markets revenue. (He rates Chase a hold, and his firm hasn't underwritten for the bank.) At midafternoon, the broker-dealer index was down 5% to 523.60, and the KBW Banks Index was off 2.6% to 846.79. Analysts are also eyeing other banks with sizable brokerage businesses. "I would assume this has been the weakest quarter of the year for Salomon Smith Barney," David Berry, banks analyst at Keefe Bruyette & Woods, says of the Citigroup (C:NYSE - news) unit. "Luckily, that fits the model, but whether I have guessed weak enough remains to be seen." (He rates the stock a buy and his firm has not done any underwriting for the bank.) Along the same lines, "Robertson Stephens lives inside FleetBoston (FBF:NYSE - news)," says Berry. "They had a blistering first quarter [in terms of IPOs] and I would expect this one has been pretty soft." (KBW rates FleetBoston an outperform and has not done any underwriting for it.) Environmentalism Berry expects most brokerages to report similar problems. "Most of the message relates to the environment we are in. Trading was very slow in October and November," he says. "Clearly there was some downshifting in the economic environment. Its very different from Chase saying, 'We took a loss on some big position.'" Eisman points out that industrywide investment banking fortunes have been closely tied to the tech sector, booming through 1999 and early 2000 and withering since. So investors who expect financial stocks to rally as the Fed moves toward a rate-easing stance in the spring of 2001, Eisman suggests, should hold on to their horses. "While the group often rallies when the rate environment gets better, it's really almost like a tech derivative," Eisman says. "The bulk of the investment banking business is in telecom and biotech, so it doesn't matter if they lower interest rates." Cutting to the Chase For its part, Chase is also grappling with some specific issues such as its venture capital arm, which had invested heavily in technology start-ups and is now feeling the full force of the dot-com implosion. It currently has a mark-to-market loss, reflecting the unrealized value of investments in its portfolios, of more than $300 million. And prior to its merger agreement with J.P. Morgan, Chase had incurred higher expenses in an attempt to build up its investment banking business on its own, analysts say. On that note, says A.G. Edwards banks analyst Diana Yates, much of the weakness was already priced into the stock. With Chase currently trading down 5.5% at $42.13, Yates says it is encouraging the stock managed to hold above $40 on the latest news. Notably, Chase, which has the lion's share of the currently shaky syndicated loan market, isn't experiencing the credit quality problems that have plagued counterparts such as Bank of America. But, says Eisman, the weakness in capital markets also has implications on the syndicated loan side, particularly for active banks like Bank One (ONE:NYSE - news) and First Union (FTU:NYSE - news) that often participate in syndicated loans in hopes it will lead to lucrative underwriting assignments. On a relative basis, Berry says Chase might actually look better than its peers by the end of the quarter, noting that investment banking revenue rose modestly compared with the third quarter. In addition, "Chase and J.P. Morgan managed to dodge" some of the credit issues hitting other banks.