Oh, the trials of the lonely bank analyst.
Right about now Wall Street is usually buzzing as analysts update their computer models for another round of earnings reports. This time, however, analysts are grousing.
Banks, it seems, have stopped offering the guidance that many analysts have traditionally used to tweak their quarterly numbers.
Regulation FD is taking the blame for this information drought. The Securities and Exchange Commission proposed the rule, which is scheduled to go into effect Oct. 23. It is meant to level the playing field for individual investors by preventing companies from disclosing material financial information to one or a limited group of professional investors or analysts.
Analysts have been complaining bitterly about Regulation FD since the summer, when banking companies began canceling meetings with them or refused to schedule new ones. Some companies that have helped analysts with their earnings models in the past have imposed a moratorium on that advice.
We are being very cautious, said Thomas Kelly, a spokesman for Bank One Corp. of Chicago, which is among the companies that have decided to stop offering guidance.
Analysts generally are expecting banking companies that rely on fee income to post strong third-quarter earnings, while those that rely on lending should post relatively weak earnings because of rising credit costs.
Banks with substantial capital markets activities may see continued moderation in that business, mostly because the summer months are typically slow for underwriting and mergers advisory, analysts said.
But apart from anecdotal evidence and their own expertise at computer modeling, the analysts have little in the way of information from the banks themselves.
Michael Plodwick, an analyst at UBS Warburg, said banks appear to have taken FD to heart. No one wants to be singled out by the SEC for violating the new disclosure rules, he said. Everyones afraid to mess with them.
But to many analysts, the situation has created only more confusion. In a third-quarter preview research note published Thursday, George Bicher, an analyst at Deutsche Banc Alex. Brown, wrote that the lack of quarterly guidance will undoubtedly lead to a greater dispersion of earnings estimates. It will increase the risk of companies missing mean estimates, he said.
Chuck Hill, head of research at First Call/Thomson Financial, an American Banker affiliate that tracks consensus estimates, said it was too soon to tell whether these predictions will come true. However, the short-term effects may be more volatility in earnings and stock prices and more pre-announcements, he said.
Access to scuttlebutt is another concern of analysts. Without one-on-one meetings with senior executives, analysts said they may be shut off from less market-sensitive information about a companys long-term direction, competitive outlook, business plans, and the general tone of its management.
James Ackor, an analyst at Tucker Anthony Cleary Gull, said these factors all contribute to earnings, just over the longer term, and that a lack of access to such information may force us as analysts to do some more big-picture analysis.
Mr. Hill said that analysts will have some transition problems, and I sympathize, but maybe its time to go back to basics.
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