Banks often get a bad rap when statistics are misread.

How are you. Gerry? I asked my friend. Gerry Lipkin, chief executive officer of the Valley Bank of New Jersey.

"Mad," Gerry replied.

"Why?"

"I have just spent an hour on the phone with a wire service reporter trying to explain why you can't compare our earnings in the second quarter of the year with those for the first quarter, but have to compare them with the comparable quarter of the previous year."

"We had the best second quarter ever." he continued, "but she compared it with our first quarter and said that earnings were failing."

I asked him why the figure for the first quarter and the second could not be compared.

Yearly Events

His response: A number of things are different. During the first quarter we give raises, so we have them on the books for only part of the period. but by the second quarter we are paying the higher salaries for the full time period. This makes the second quarter naturally worse than the first.

"Other forces are also cyclical." he added. "In the fourth quarter we build loan-loss reserves when we have had a good year. To the reporters the bank looks worse, even though we feel this is healthy."

Gerry was really venting his spleen at the fact that a bank should be run for long-term performance, but reporters and analysts want week-to-week or quarter-to-quarter results and don't give a fig for the long run.

"I want to think of Valley's future rather than put the bank under a microscope every quarter," he said.

Analysts' Shortcoming

If the type of reporting that Gerry Lipkin complains about was only seen in the local press and quickly forgotten by the public, it would be one thing.

But what is go important is that security analysts, who play a key role in determining the demand for a bank's stock, follow the same "Let's look at the here and now," attitude.

When a bank reports a bad quarter, the stock plummets, whether this is indicative of a change in the bank's long-term performance or not. Conversely, good earnings often lead to a run-up in stock price that is not justified in the long fun since the causes of the improvement are temporary.

So what Gerry and other savvy bankers would like, if they could have their way, would be for both the reporters and the analysts to take a longer look at the bank instead of reacting to the latest reports and comparing them with prior data that should not be used as a yardstick.

What is ironical to me, though, is that in the same week that Gerry Lipkin was complaining that the press and the analysts do not give correct interpretation to the numbers provided by banks. I heard the same complaints from an investment banker about the bankers' inappropriate interpretation of the numbers they present!

The investment banker was Bruce Chodash, executive vice president of Ryan Beck & Co., market maker in a number of New Jersey community bank stocks.

"What gets me mad is the way the press highlights the movements of the prices in a number of the stocks we position when really nothing has happened," Bruce said.

"A stock may sell at 6 1/2 to 7 - 6 1/2 bid, 7 offered, with the spread being our compensation for handling. for taking the risk of a price decline while we position the shares, and for the carrying cost of positioning the stock in our trading portfolio.

Artificial Drop

"So one evening, the stock closes at 7. The next day, the last trade is a sale to Ryan Beck, for which we pay 61/2. So the press boldfaces the quote and says stock plummeted.

Next day, the last trade day is a purchase from Ryan Beck by a customer at our asking price of 7.

"The result: The stock is reported as closing at 7, up a half. And the press boldfaces it again as one of the leading gainers - up over 7.6% for the day!

"The bankers call and yell, |Can't you make a steady market in our stock?"

"But as far as we are concerned, the stock hasn't moved all week. It is still 6 1/2 bid, 7 asked."

Perceptions Count

So, as with the bank reports, it is not what is truly significant that counts but what the public and the analysts look at that matters.

In sum, bankers and investment bankers have enough troubles without having the data they report be misinterpreted.

A little more depth in reporter interrogation, and a little more long-term perspective on the part of analysts and the press, would serve all of us well - bankers, the investment bankers, and the shareholders who make the whole game possible.

Mr. Nadler is a contributing editor of American Banker and professor of finance at the Rutgers University Graduate School of Management.

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