Bank Stocks Slide as Analyst, Citing Y2K Worries, Says ‘Sell’
A rare “sell” recommendation from an analyst at a major brokerage sent leading U.S. bank shares tumbling on Monday.
Analyst Michael Mayo at Credit Suisse First Boston triggered sharp declines in Citigroup, Chase Manhattan and other banks after he warned that future earnings could suffer because of year 2000 computer bug-related matters.
“Results in the second quarter might be the last best earnings for some time,” Mayo said.
Although U.S. banks are spending heavily on the so-called Y2K problem, Mayo warned that “a Y2K problem with a bank in an emerging-market country has the potential to cause glitches for banks in the U.S.” because institutions worldwide are so interconnected.
The Y2K bug refers to the potential for computers to mistake dates with 2000 in them as 1900 instead.
Banks in several smaller countries remain “manifestly under-prepared” for the Y2K problem, according to a survey released at the end of March from the Basel Committee on Banking Supervision.
Mayo also said that U.S. banks’ capital markets earnings, such as from trading securities, have been unsustainably high this year because of pent-up demand after the market turbulence of 1998.
In addition, problem loans are increasing in industries such as health care, energy and sub-prime finance, the analyst said.
Mayo cut Citigroup, Chase, J.P. Morgan and Bank One to “sell.” Citigroup dropped $2.69 to $65.13, Chase slid $3.06 to $75.88, Morgan lost $1.94 to $136.75 and Bank One fell $1.31 to $58.50.
He also cut BankBoston to “hold.” The stock lost $1.69 to $46.75.
Sell recommendations are rare on Wall Street, where many analysts prefer not to irritate potential corporate clients with such harsh words.
Other analysts, meanwhile, said U.S. banks were well prepared for Y2K and may benefit from a “flight to quality” as corporate customers look to do more business with larger, more stable banks at the end of the year.
“If anything, the American banks within these markets will benefit,” said Thomas Hanley, analyst at Warburg Dillon Read. “American banks witnessed a very substantial increase in deposits, lending and all other services” in regions where there has been economic turmoil, such as Asia, Hanley said.
*
* FEW WORRIES: Most Americans don’t expect Y2K to affect their money. C12
