Merrill Lynch & Co.'s Sandra J. Flannigan has always stood out from the pack.

When she took her first job at the Texas energy-stock boutique Rotan Mosle, she chose banking industry research as her specialty, eschewing an offer to become one of the firm's many energy analysts.

Later, after PaineWebber Inc. bought the company, she established herself as a top-flight analyst by being among the first to spot the crisis among Texas banks and thrifts in the 1980s.

So as this year's top-ranked regional-bank analyst in the American Banker's survey of bank-earnings forecasting prowess, Ms. Flannigan is simply adding to a string of accomplishments.

"I originally decided to cover banks because no one was covering them and I didn't want to be just one of the pack," she said.

And in 1995, she clearly distinguished herself from her peers. Of the 15 regional banks she covered, she was one of the top three analysts for nine of them, including first-place estimates on U.S. Bancorp., First Fidelity Bancorp. and Barnett Banks Inc.

But the best picks, she said, were her estimates on First Interstate Bancorp., Norwest Corp. and Boatmen's Bancshares.

Ms. Flannigan's work attracts praise from many of the banks she covers for her open-mindedness and willingness to change opinions.

"There are some analysts who simply have a narrow view of the world, so if a particular company does not fit into their model, they don't like that institution," said Richard M. Kovacevich, chief executive officer at Norwest Corp.

"But Sandy is willing to be more flexible in trying to understand a company, even if it is not consistent with her original diagnosis," he added.

Mr. Kovacevich lauds her appreciation of the industry's revenue crunch, and concluded she gained her critical eye covering the demise of the Texas banking industry.

Her attention to credit quality perhaps can be attributed to the troubles she witnessed in Texas, where bad real estate and energy-producer loans toppled nearly all of the state's large banks.

She only has one "buy" recommendation currently standing - Norwest - and worries that consumer-credit concerns will haunt the industry.

While not on the scale of the energy and real estate woes that bedeviled the banking industry in the 1980's, she says cautiously that "the clouds will still get darker before the sun shines again on the consumer."

She also sees Wall Street 1996 earnings estimates for banks being reduced, as margin pressures and higher loan-loss reserves depress earnings.

On the bright side, she predicts that the industry's merger wave will continue, and that banks will still have a sizable amount of excess capital to repurchase.

In fact, Merrill lynch is forecasting 9.5% earnings growth for banks in 1996, which tops the company's prediction for the overall Standard & Poors 500 stocks index.

The biggest disappointment of 1995 was First Union Corp.'s stock performance, she said. Battered by investors unhappy with the 10% book dilution the bank took when it agreed to acquire First Fidelity, the stock lagged the tremendous runup of its peers.

She too criticizes banks like First Union for overpaying for acquisitions, but she said the southern bank's fundamentals would soon overcome doubts about the purchase.

While Ms. Flannigan does not have a short-term "buy" rating on the bank - she had a long-term "buy" - First Union's senior vice president of investor relations, Barbara Massa, praises her anyway.

"A lot of analysts only follow you closely when they have a 'buy' on you," said Ms. Massa. "But she follows you closely whether she has a buy on or not, so she's in a position to make early calls."

A native of Texas and graduate of the University of Houston at Clear Lake, Ms. Flannigan convinced PaineWebber in the 1980s to let her stay in Texas, an unusual spot for a banking analyst at a New York-based securities firm.

Between 1990 and 1992 she established and directed Alex. Brown & Son's bank research team. Every year since 1991 she has been named to Institutional Investor magazine's All American Research Team.

Asked if one day she would consider covering a new industry, Ms. Flanagan replied negatively.

"Given all the change that is happening in the bank industry, it will be very interesting and challenging to follow it for some time," she said. "After all, with all the financial-services mergers, who knows what a bank will ultimately be a part of?"

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