The year 2000 brought busted loans, higher interest rates, massive restructurings, and widespread staffing cuts.
From an investor viewpoint, it was quite a good year.
The view is anything but cynical. Instead, given Wall Streets endless attempt to anticipate the future, the markets behavior over the last half of the year suggests that there is reason to believe that the days of profit growth recovery may be at hand. Bank stocks overcame an awful first quarter to put up respectable gains during a year that could turn out to be the worst for stocks since the Nixon administration.
Along the way, you could almost see the markets, banks, and regulators playing out an elaborate trust game.
Certainly, most in the business of charting investment and boardroom strategies for next year trust that the Federal Reserve will adopt a friendlier monetary policy in 2001.
The most obvious reason financials are up is because of the prospect of lower interest rates, which we could see as soon as January, said Peter Cardillo, director of research at Westfalia Investments in New York.
That would make the world a happier place for banking and end what has been a powerful global monetary tightening effort. Bloomberg calculates the number of interest rate increases by central banks as totaling 142 since June 1999.
Part of the reason so many feel so confident is that Fed Chairman Alan Greenspan has made it clear as clear as he ever makes anything, at least that lower interest rates could be just around the corner. In doing so, Mr. Greenspan displayed a measure of trust that the markets had evolved from their period of irrational exuberance into a more thoughtful, responsible period.
Whether that trust is well placed could be tested early. Turn the performance of the bank index upside down last year and it lines up nearly perfectly with the Nasdaq Composite, evidence that money was basically flowing back and forth between the groups in a mad dash to catch the next trading fad.
Whether that rotation we saw between the financials and techs will break down is not yet clear, Mr. Cardillo said, meaning that technologys recovery could spell trouble again for value (Wall Streets euphemism for cheap) stocks.
On the merger and acquisition front, the measure of the markets trust in various bank managements was perhaps most evident. Here, Wells Fargo & Co., for example, was able to extend its relentless acquisition strategy without putting its own stock at risk, an ability that allowed it to grab the bargain First Security Corp. had become once its merger with Zions Bancorp. fell apart.
No one questions that Firstar Corp. Chairman Jerry A. Grundhofer and U.S. Bancorp. Chairman John F. Grundhofer trusted each other enough to work out a deal to bring their two banks together indeed, many wondered why they took so long to arrange it. While its initial reaction to the deal may have been rocky, Wall Street eventually warmed to it, comforted by Jerry Grundhofers track record on previous deals.
And if Citigroup Inc.s reputation left it with no reservoir of trust that its stewardship of Associates First Capital Corp. would be one community activists might welcome, chairman Sanford I. Weills record of translating size gains into profitability gains made the deal an easy swallow for the market.
Bank managements showed their own measure of trust in the maturation of investors views on a wide range of topics, in the process hacking at if not necessarily slaughtering some sacred cows. In general, that trust was well placed. While a few investors complained when Bank One Corp. and First Union Corp. sharply reduced dividend payments, that the banks were making the cuts as part of broader efforts to get their capital structures in order helped sell the decision.
In return, investors set a simple mandate for both companies managements in 2001. Build and protect the trust.