Brace yourself for an onslaught of mini-Mike Mayos.
As if to emphasize its exit from investment banking and its new focus on providing advice to investors, Prudential Securities confirmed on Tuesday that it had replaced its financial institutions research team led by Nancy Bush with a group led by Michael Mayo, the controversial former Credit Suisse First Boston analyst.
Mr. Mayo said in an interview that part of his mandate as managing director at Prudential is to help train other analysts to take the same hard-nosed coverage approach that helped put him at the top of the Institutional Investor annual all-star rankings.
"I have offered to assist in training to create other Mike Mayo-type analysts," he quipped. "We're here to help ensure 100% investor-friendly research."
John Strangfeld, chief executive officer of Prudential Securities, said: "This is a fundamental sea change in the way we've positioned ourselves. We would look to Mike to help shape the culture and the mindset of the new firm."
In December, Prudential Securities said it was significantly curbing its investment banking practice and that it would concentrate on providing investment advice tailored to individual and institutional clients of its brokerage operations. The move was an admission that it could not compete against traditional bulge-bracket investment banking firms in the world of underwriting and advisory.
At the same time Prudential Securities said it saw potential benefits from giving advice free from an environment tainted by investment bankers, who by necessity have to cater to the needs of corporate issuers.
Tension between research analysts and investment bankers is ingrained in Wall Street culture. However, some in the industry have slammed the relationship between research and investment banking, one they say often pressures analysts not to speak ill of a stock lest they jeopardize their firm's chances at getting underwriting business.
Mr. Mayo's claim to fame was his bearish call on the banking sector in late 1998 and early 1999, a time when most other analysts on Wall Street were positive on the industry. Before he started downgrading the sector, Mr. Mayo had been one of banking's biggest bulls.
To be sure, Ms. Bush has also been critical of banks. Last month she put a "hold" rating on Bank One Corp. stock and recommended that investors "take the money off the table and watch this one from the sidelines" until the Chicago company gets itself on firmer financial footing. Many of the 26 other analysts who cover Bank One had ratings that ranged from "market outperform" to "buy."
Bank stock investors, who would not comment for the record, said they were surprised and disappointed by Ms. Bush's abrupt ouster from Prudential. Reached at home, she declined to comment on the record.
But observers said Ms. Bush simply didn't have the high profile or the notoriety of Mr. Mayo, which could help drive home Prudential's point that it was changing.
"There is nobody, with the possible exception being me, who could signal your intentions better," said Tom Brown, a former sell-side analyst who now runs Second Curve Capital, a New York investment fund. Mr. Brown is among the more critical voices in the debate on the relationship between research and investment banking.
Mr. Mayo brings five others who were also dismissed when Credit Suisse First Boston acquired Donaldson, Lufkin & Jenrette Inc. and installed that company's bank research group. The new team includes David Trone, who will cover midsize banks and brokerages at Prudential, and Kevin Fitsimmons, who will cover midsize banks.
Bradley Ball, who joined Prudential last fall from Credit Suisse First Boston to cover mortgage banking, will add specialty finance to his coverage. Mr. Mayo said he would hire two additional analysts.
Mr. Strangfeld said Prudential would ultimately shift its focus from the small and midsize companies it has been covering to larger-cap companies that are more popular with investors. "We intend to broaden our coverage and also spend more time on asset allocation and portfolio strategy."
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