Banking Analysis with a Creative Twist

To investors and colleagues, bank analyst Henry "Chip" Dickson of Smith Barney Inc. is one of the Street's most creative analysts.

In a recent report on the banking industry, Mr. Dickson included a drawing of a dinosaur in a circle with a line through it.

The industry is changing too rapidly for banks to hold onto traditional banking strategies, warned Mr. Dickson.

In other words: "No Dinosaurs."

"You don't find that in many bank reports," said analyst Jacqueline Reeves of Smith Barney, who started working for Mr. Dickson this year.

Indeed. And you don't find too many sharp-shooting analysts with near- perfect earnings estimates.

According to American Banker's annual survey of bank analysts, Mr. Dickson ranked made the most accurate earnings projections for regional banks.

His average margin of error, as a percentage of the average margin of error of his peers, was about 17%. His accuracy is especially compelling considering that Mr. Dickson gave 66 estimates - more than twice the number from any other analyst.

For individual banks, he got perfect scores of 0.00 with Barnett Banks Inc. and First Union Corp.

While Mr. Dickson modestly credits "team work" and "opportunity" for his success, his colleagues were more forthcoming.

Mr. Dickson's valuation models for banks are distinct and dependable, said Phillip Gainey, an associate analyst at Smith Barney.

"He is one of the few that publish detailed forecasts out to the year 2000," said Mr. Gainey. "We usually ask all the banks that we cover if they've seen other forecasts like this and they say, 'no.'"

Mr. Dickson values banks by analyzing discounted capital flow, which tracks a bank's cash flow and its capital allocation, such as repurchase programs, said Ms. Reeves.

"He created this alternative because the industry was changing through better performance and technology," she said. "The (analysis) enables him to better understand and keep better informed about banks."

The analysis also helps banks to better understand themselves. It was cash flow analysis that helped Wells Fargo & Co. convince Wall Street that its acquisition of First Interstate would be lucrative.

Since then, the analysis has gotten considerable attention among other analysts, who tend to value banks by traditional measures such as price-to- book and price-to-earnings ratios.

Mr. Dickson, however, is more proud of what he can do with the analysis. In a thick quarterly report published in November, the son of a former banker was able to do long-term forecasting for 39 banks out to 2001.

"We like to challenge ourselves," he said.

He argues that long-term forecasting is important, particularly when analyzing institutions such as NationsBank Corp.

"If you forecast out to two years, you only realize part of NationsBank's story," he said. "NationsBank's cost savings (from its intended acquisition with Boatmen's) will only be realized over the long term."

Other banks that Mr. Dickson believes have "long-term value" include Chase Manhattan Corp., First Chicago Corp., National City Corp., Fifth Third Bancorp, First American Financial, and First Tennessee National Corp.

Ms. Reeves is confident Mr. Dickson will continue to expand his innovative models beyond discounted capital analysis.

Mr. Dickson joined Smith Barney in April 1993 after several years with Kemper Securities - now Everen Securities - where he covered regional banks.

Before that, he covered midwestern banks with McDonald & Co. for four years.

Before he went into bank analysis, he was a commercial loan officer at the Central National Bank of Cleveland and First National Bank of Chicago.

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