The departure of a high-profile colleague and renewed interest in regional banks have thrust Sean J. Ryan into the spotlight at Bear, Stearns & Co.
Mr. Ryan, 28, suddenly became senior bank analyst this month, when veteran bank watcher Lawrence Vitale left to join a start-up hedge fund. Mr. Vitale became the financial institutions analyst at Lone Pine Capital, a Stamford, Conn., firm headed by a former executive from hedge-fund pioneer Tiger Management.
Mr. Ryan, hired last spring to follow small and regional banks, picked up coverage of Mr. Vitale's large banks. It has not been decided if Mr. Ryan will be in the big-bank slot permanently. He previously held bank analysis and research positions at Lehman Brothers and Credit Suisse First Boston-both under veteran bank analyst Michael Mayo.
Mr. Ryan is generally bullish on the banking sector, saying conditions are ripe for "price-earnings multiples to continue to expand."
He credits deregulation, the robust economy, the health of the banking system, and banks' declining sensitivity to interest rate gyrations.
Summit Bancorp is his top pick. The $29 billion-asset New Jersey holding company is in position to increase earnings by 11% to 13% annually over the next few years, propelled by a move to lower-cost distribution systems, accretive acquisitions, and an aggressive marketing program, Mr. Ryan said.
As the largest independent bank based in New Jersey, Summit represents "the last best hope for any superregional seeking to compete in that market."
Mr. Ryan's buy recommendations also include Crestar Financial Corp. and Mercantile Bancorp. He rates as attractive First Tennessee National, Regions Financial, and Colonial Bancgroup.
Mr. Ryan said his approach to analysis is to "question underlying and long-held assumptions."
He looked at the adage that the industry is overbanked and came away with the conclusion that it is anything but. The United States does have a lot of financial institutions, but it has fewer branches per capita than many other countries, Mr. Ryan said.
For instance, in Switzerland, there is one bank branch for every 956 residents. In the United States the ratio is one per 3,646 residents.
Mr. Ryan, like many other industry watchers, expects consolidation to continue. But economies of scale are not a given. "Larger banks may be inherently less nimble than smaller ones," he said, and larger banks may be more likely, because of their capital, to indiscriminately spend on technology.
Mr. Ryan has also noticed that executive compensation correlates more with size than performance. "As a bank grows, executives generally earn more regardless of profitability."
He credits a relatively low-key pace at Bear Stearns for giving him the ability to closely scrutinize the banking field.
He also said Bear Stearns, unlike some other shops, does not pressure its analysts to talk up companies that its investment bankers or traders want to do business with.
He said he plans to continue developing theories and testing those that are taken as conventional wisdom. In fact, his position and his short time in the field demand it.
"I don't know why anyone would just want to take my word for it," he said. "I feel I have to quantify and test everything" to establish and maintain credibility.
