Charles Peabody Starts Boutique
Charles W. Peabody, Kidder Peabody & Co.'s senior bank stock analyst, left the investment bank Tuesday to start his own short-selling firm.
Though a Kidder spokeswoman denied that Mr. Peabody, 36, was pused out, his exit follows the loss of several lucrative accounts because of his bearish reports. He is not related to the Peabody of the firm's title.
In July, NCNB Corp. stopped trading fixed-income securities and equities for its trust account through Kidder, and is believed to have pulled back on making overnight loans to the broker.
The decision followed a string of negative reports that Mr. Peabody had penned on the North Carolina bank over the past few years.
Spotlight Focused on Chase
Now, sources say, Mr. Peabody has been facing friction from Chase Manhattan Corp., another Kidder client, after his presentation, "Citicorp Redux," at a recent short-sellers' conference sponsored by Grant's Interest Rate Observer. The gist of his talk: "If you missed out on the chance to short Citicorp last fall, don't worry. Chase is still around."
He focused in part on Chase's allegedly severe overreliance on credit cards. The card unit has less than 10% of the company's assets, but contributed almost 50% of its net income, he reportedly said.
(Chase chairman Thomas G. Labrecque told investors at a conference sponsored by Goldman, Sachs & Co. on Tuesday that the company's retail credit quality "remains strong," with credit chargeoffs in the third quarter about 40 basis points below industry averages.)
Mr. Peabody also called the nation's fourth-largest bank company underreserved and overexposed to real estate. An investor who has worked with Mr. Peabody said that bond traders at Kidder "killed" the 40-page report that grew out of Mr. Peabody's presentation.
NCNB and Chase declined to comment.
Mr. Peabody joined Kidder in 1988 after a four-year stint at Drexel Burnham Lambert Inc.
"I think there's a lot more opportunity on the buy side," Mr. Peabody said in an interview Tuesday, noting that he hopes to help himself and clients "benefit from my knowledge of the hurdles that the industry faces."
His partners in the new firm, East Shore Partners Inc. in Springfield, N.J., are Anton Gerdes and Fritz Garrecht. The two benefited from the analyst's research on the decline of Valley National Corp. in Arizona, Mr. Garrecht said.
These partners will each have 30% equity stakes in the firm. Carl DeLucia, a retired chief financial officer of Dillon, Read & Co., will hold 10%.
Mr. Garrecht, who most recently worked with Mr. Gerdes at First Long Island Securities Corp. in Carle Place, Long Island, said the new boutique hopes to profit from selling short bank stocks researched by Mr. Peabody.
Friction between Mr. Peabody and Kidder - and criticism from some fellow analysts for mixing research with investment banking - is not new. His frank reports cost him a big part of his 1990 bonus, according to a source who knows him. Mr. Peabody declined to talk about his salary.
One of his associates said Mr. Peabody's trenchant analysis also has won the firm some assignments.
"Kidder got the First Union business largely because of his relationship with the bank," he said, referring to Kidder's underwriting of a $210 million equity offering by First Union Corp. in October to finance its acquisition of Southeast Banking Corp.
"He hasn't made loads of friends at troubled banks," added a source at Fleet/Norstar Financial Group Inc., "but he's been on the mark."