Ann Robinson of Bear Stearns & Co. cut her teeth as a bank bond analyst in the difficult boom and bust years of the late 1980s, and quickly developed a reputation for keen insight.
Among bank stock analysts "she's well into the 90th percentile of accuracy," said Tom Quigley, a retired Wall Street trader who worked with Ms. Robinson for several years at Donaldson, Lufkin & Jenrette.
Mr. Quigley and Ms. Robinson navigated the treacherous bank environment of the early 1990s, when spreads on bank bonds widened out 100 basis points or more in a single day. Mr. Quigley marveled at Ms. Robinson's ability to understand and forecast instability in the market.
Fortunately for banks, the waters ahead appear much calmer to Ms. Robinson - and even present a few investment opportunities.
"Things are fairly sanguine right now," she said last week. Several macroeconomic indicators suggest that the economy is indeed headed for a soft landing, she said, which stalls changes in bank bond spreads.
The 5.5% savings rate, the recovery of the slumping dollar, and the momentum to reduce the federal deficit suggest that the next few months will be fairly quiet in bank bonds, presenting opportunities for banks with upward credit rating prospects.
While the market doesn't present any screaming buys, Bank of Boston, West Coast thrifts, and PNC make her current buy list.
Despite a recent ratings downgrade from Moody's, PNC is a buy at 80 basis points over treasuries, since the worst is probably over for the Pittsburgh-based holding company and the downgrade is already factored into the price, she said.
Additionally, Citicorp, Bank of New York, and Midlantic have positive ratings potential, she said.
First of America in Kalamazoo, Mich., is a "Midwest gem" that stands out for being undervalued, said Ms. Robinson.
Nobody loves it, but at 85 basis points above Treasuries, it's trading about 10 basis points cheaper than its financial ratios would justify, she said.
Ms. Robinson spent more than half her 19 years in the financial services industry in jobs with the Federal Reserve Board, the Comptroller of the Currency, the Federal Deposit Insurance Corp., and in several posts at Manufacturers Hanover.
"I was talking to the president of Manufacturers the day Mexico defaulted in 1982," she said. "He turned as white as a ghost."
The reality of banking is something that hits home when "you live through these dramatic events," she said.
Living through the real estate and Latin American crises from the banking side has given her an appreciation of the importance local economic environment serves as a leading indicator of impending problems.
Disproportionately heavy lending in particular sectors serves as a warning sign of impending problems at banks, she said. Unfortunately, most heads of banks "come up through the loan side," she said, noting that credit cycles occur despite the efforts of the "boring credit analysts" to rein in the "go-go lenders."
The current credit environment, however, is particularly strong. Capital ratios are high, bad loans are down, and reserves are up, said Ms. Robinson. "All looks well restored relative to 1990 and 1991, when hundreds of banks were on the problem list in Washington."
Significant problems seem unlikely in the current environment, she said, because banks are taking portfolio management approaches, rather than loading up in a specific sector.
Additionally, banks are securitizing loans, which allows them to spread the risk.
But "things may not stay quiet for long," Ms. Robinson warned. She said she intends to watch the dollar, the budget deficit, and savings rates "like a hawk."