Bankers lament Wall Street's focus on short-term results. But banking veteran Thomas J. Maier is finding out first hand how hard it is to change that orientation.
After working for 16 years as a chief financial officer at Illinois community banks, Mr. Maier in 1992 joined Chicago Corp. as a bank equity analyst. Now a senior vice president at Kemper Securities, Inc. the banker- turned-analyst still wrestles with the market's priorities.
"There is a great temptation to focus on the current quarter's earnings and whether they were a penny or two off the consensus forecast," says Mr. Maier. "Long-term strategy gets lost in that jumble."
At the same time, Mr. Maier, 46, has come to realize the enormous pressures placed on money managers.
"Portfolio managers get measured by what they deliver in the short term, so they are interested mainly in short-term performance," says Mr. Maier. "If you are a sell-side analyst talking to people with a short-term orientation, you have to serve those customer preferences."
The market's focus on subtle changes - be they in net interest margins or earnings per share - frustrates bank CFO's, says Mr. Maier. As an analyst, however, Mr. Maier knows he needs to stay on top of fluctuations, right down to two or three pennies a share.
Through it all, he works to articulate the underlying trends.
"You have to keep your eye on where the company is going," Mr. Maier says. "People are focusing so much on margins this quarter as compared with the last - they have to understand why they moved."
Equally important, says Mr. Maier, analysts have to pay attention to the perceptions and sentiments driving the market - even if they appear ill- founded.
"There definitely is a herd mentality," says Mr. Maier. "If you've got the bulk of the sell-side community espousing a particular view, and the buy side is taking it as gospel, stocks will move. It may not matter whether that view is appropriate."
Chief financial officer of the former First Colonial Bankshares Corp. for 10 years, Mr. Maier was accustomed to knowing all the details of the $1.6 billion-asset banking company. But here again, the executive is on different ground.
Upon becoming an equity analyst, "The temptation initially was getting way down deep in the numbers, building those elegant and detailed models," said Mr. Maier, who holds a masters in accounting from New York University and a bachelors degree from Princeton.
"That was great, except it took too long. There were 29 additional models I needed to build, and monitor, and update. While you don't want to gloss over things as an analyst, you really do have to learn to develop a viewpoint quickly."
At the same time, Mr. Maier says he has developed an even greater appetite for information. His advice to bankers: disclose as much as possible.
Although banks do provide comparatively more disclosure than other industries, the complexity of their operations still leaves analysts with "a dearth of information," says Mr. Maier.
"If I had known as a CFO what I now know as an analyst, I would have provided a broader range of information," says Mr. Maier, who also contends he would have better anticipated market reactions.
Transition stresses notwithstanding, Mr. Maier says his banking background gives him an edge as an analyst.
His perspective on acquisition pricing, for example, differs from those who fixate on price-to-book ratios. Mr. Maier, who assisted in 14 acquisitions while at First Colonial, says the price-to-earnings ratio is much more meaningful.
Thus, Mr. Maier was not particularly disturbed when NBD Bancorp shelled out 200% of book value in the January 1995 acquisition of Deerbank Corp., a Chicago-based thrift. At 14 times earnings, he says, the deal looks less pricey.
Mr. Maier said his experiences as CFO have colored opinions about other banking issues as well.
"When First of America Bank Corp., Huntington Bancshares and Banc One Corp. began discussing the declining profitability of the indirect auto business a year ago, I knew what they were talking about," Mr. Maier says.
The indirect auto-financing business is cyclical and subject to extremely competitive price pressures from banks and, more importantly, from captive finance companies such as General Motors Acceptance Corp., says Mr. Maier.
Many players "really have to think about whether or not they want to stay in that business long term," he says.
In his coverage universe of Midwest banks, Mr. Maier has "strong buy" ratings on just four institutions, reflecting his view that the overall bank sector will not outperform the market.
The analyst's top picks are Firstar Corp., Milwaukee; Hawkeye Bancorp, Des Moines; Keycorp, Cleveland; and Minneapolis-based Norwest Corp.
At Firstar and Norwest, Mr. Maier says, strong revenue trends, balance sheets, and credit cultures keep them well positioned to cope with any potential economic downturn. He adds that Norwest's presence throughout the 50 states and the 10 Canadian provinces particularly enhances its growth prospects.
Keycorp is a value buy, says Mr. Maier, considering it is trading at roughly 1.5 times book value and 6.5 times projected earnings for 1996. Hawkeye made Mr. Maier's list by virtue of its management solidity and market share, the analyst says.
A native of Beaver Dam, Wisconsin, Mr. Maier says he is enjoying his excursion on the sell side.
Drawing on his banking experience, however, he is keeping an open mind about the future. The executive made the move to Chicago Corp. in anticipation that First Colonial eventually would be sold.
Mr. Maier did not offer comment on Kemper, but the ownership and structure of that company clearly could change if a rumored sale or employee-led buyout materializes.
Though he says he has no plans to do so, Mr. Maier asserts he could repackage himself to become a chief financial officer once again.
The brokerage business "is one with a lot of consolidation as well," says Mr. Maier. "So you never know."