Bank stocks spent much of 1997 as the high-flying darlings of the market.

Nigel P. Dally, the money-center analyst at Morgan Stanley Dean Witter, however, began detecting turbulence before bank stocks themselves began to tremble.

As money-center stocks surged in early October, Mr. Dally firmly maintained "neutral" ratings or downgraded some of the best performers in the banking industry.

On Oct. 27, banks stocks-particularly the shares of money-centers-fell out of the sky like Icarus.

It was Arthur P. Soter, Morgan's previous money-center analyst and Mr. Dally's mentor, who had downgraded the entire sector to "market perform," but it was Mr. Dally who honed the earnings estimates on individual banks within a razor's edge of accuracy.

In American Banker's annual Wall Street Sharpshooters survey, Mr. Dally, 28, ranked No. 1 as the analyst who came closest to correctly predicting earnings estimates for money-centers. Mr. Dally, who hails from Perth, Western Australia, earned an average relative error rate of 0.71% on his 15 estimates. Following close behind was Robert B. Albertson of Goldman Sachs & Co., who attained an error rate of 0.73% out of 27 estimates. Norman Jaffe of Fox-Pitt Kelton Inc. ranked third with an average relative error rate of 0.83% out of 25 estimates.

Nigel Dally "is just a good all-around analyst," said Dennis F. Shea, managing director and director of North American equity research at Morgan Stanley.

"His models are extraordinary in terms of detail, predictive nature, and ease of use," added Mr. Shea, who once analyzed regional bank stocks for Morgan. Those three elements "don't always go hand and hand."

Mr. Dally still remains cautiously optimistic on the group although many on the Street are singing slightly more bullish tunes as the turmoil in Southeast Asia and its impact on the U.S. economy subsides.

"At 'market perform,' we think it will be difficult for money-centers to outperform in emerging markets, the difficult global economy and the increasing global competitiveness," explained Mr. Dally, who just picked up coverage on the group in September. "money-centers, however, continue to offer good value."

Out of the seven money-centers, Mr. Dally has rated only one, Citicorp, a "strong buy." Two others, Chase Manhattan Corp. and BankAmerica Corp., are rated "outperform." The remaining money-centers-First Chicago NBD, Bankers Trust, Wells Fargo & Co., and J.P. Morgan & Co.- are rated "neutral."

A money-center's capability to compete globally is what will edge it in front of most companies, said Mr. Dally. "Citicorp, we believe, is that company."

That seemed the case before Asia's economy went into a tailspin. Citicorp's shares-the toast of Wall Street-had soared to a dizzying 52-week high of $144.1875 on Oct. 21. But as reports circulated that one of the largest banks in the country would suffer losses due to loans made to Southeast Asian companies, Citicorp's shares and supporters began to fall away.

By mid-January, the company's shares hit a low point of $112.75 and some of its biggest Wall Street supporters began slashing away at their bullish recommendations and earnings estimates.

Mr. Dally shaved Citicorp's 1998 earnings estimates 20 cents and cut his price target to $160 from $166, but steadfastly maintained his "strong buy" rating.

"There is no doubt that Citicorp will suffer from higher credit losses and lower revenue" in 1998 because of its exposure to Southeast Asia, said Mr. Dally, "But there are offsetting factors."

Those factors include Citicorp's unfailing global brand, which has fetched additional customers as Southeast Asian banks deteriorate, said Mr. Dally. This flight to quality "gives Citicorp an excellent opportunity to extend their franchise, which could include buying a bank in Southeast Asia."

The company also is committed to increasing productivity and has unveiled two cost-control initiatives that will help boost earnings and profitability, he added.

When all is said and done, "our new estimate is conservative," said Mr. Dally. "We continue to believe that Citicorp represents outstanding value, and the stock remains our top pick in the money-center universe."

Mr. Dally also remains bullish on Chase Manhattan and BankAmerica.

"Chase is on track to achieve strong revenue and earning growth in 1998 and beyond," wrote Mr. Dally in a recent report. "We continue to believe that it will emerge as an elite player in global wholesale financial services."

On. Feb. 23, the analyst lifted the money-center's 1999 earnings estimates 20 cents and its price target to $136 from $133. At the same time, however, he shaved his 1998 earnings estimates-by a nickel-and continues to rate Chase "outperform."

The company is unlikely to see strong revenues and a payoff from expense initiatives in 1998, noted Mr. Dally. "The wholesale banking environment has also become increasingly competitive."

BankAmerica is also a strong company but "based on valuation, the upside is not as great" as it is with Citicorp.

Mr. Dally pointed out that economic turmoil is Asia, higher credit losses, slower revenue growth and less profitable trading conditions as well as the year 2000 glitch are problems that the other money-centers continue to grapple with. Hence, their "neutral" rating.

Mr. Dally, who came to Morgan Stanley in 1995, got his start on money- centers working with Arthur P. Soter, who was Morgan's money-center analyst for 20 years. Last September, Mr. Soter became Morgan Stanley's global financial services strategist.

Mr. Dally, who covered Canadian banks and assisted Mr. Soter with the money-centers, was promoted to money-center analyst in September.

Before he arrived at Morgan, Mr. Dally obtained his M.B.A. in 1995 from Columbia University's business school.

In 1993, he joined the University of Western Australia, lecturing on finance and investment management. In 1990, he was an accounting corporate advisor for Hendry Rae Court, and left after a year to start his own technology consulting company, Optic Technology Consulting International.

He received a bachelor of commerce degree from the University of Western Australia in 1989 and returned to the university to earn honors in commerce in 1992.

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