Veteran bank stock analyst Thomas H. Hanley, whose knack for identifying merger and acquisition plays in the banking industry gained him considerable attention, is out of his job at Warburg Dillon Read.
The 56-year-old analyst's tenure at Warburg Dillon Read ended Tuesday night, according to sources familiar with the events. Mr. Hanley, who has been covering bank stocks for close to 30 years for a variety of firms, was not available for comment, but a person answering Mr. Hanley's direct number at the firm confirmed his departure.
While some insiders at Warburg, a unit of Zurich-based UBS AG, characterized Mr. Hanley's departure as a mutual decision, many said Mr. Hanley, whose salary was said to be between $2 million and $3 million, may have been a casualty of the poor performance in bank stocks, a trend that has led many companies to streamline their commercial banking research departments.
"We are seeing a broader trend that is emphasizing technology," said one analyst, who requested anonymity. "There has been poor sentiment for the banking sector."
Mr. Hanley gained prominence particularly in 1994 and 1995, telling investors that the sector would consolidate, and he engaged investors with his "takeover lists." He has been voted the best money-center bank analyst in the United States 13 times in Institutional Investor's poll.
But last year was one of the worst for bank mergers and acquisitions in recent memory. According to Thomson Securities Data there were 422 U.S. bank deals - $250.26 billion worth - in 1998. In 1999 it was 297 deals, worth $66.62 billion. So far this year has produced 29 deals, worth $5.22 billion.
But some investors who religiously use Mr. Hanley's takeover lists said that his last one, delivered Dec. 16, was lackluster. It included First Virginia Banks, SouthTrust Corp., Huntington Bancshares, Summit Bancorp, and Hibernia Corp.
In 1997, Mr. Hanley's reputation was tarnished by reports that the Securities and Exchange Commission was investigating his erroneous prediction that Travelers Group Inc. was considering buying Bankers Trust New York Corp. The forecast prompted a surge in Bankers Trust shares, and the SEC was reportedly looking into whether Mr. Hanley was manipulating the market.
An SEC spokesman declined Wednesday to confirm that such an investigation had taken place.
Amid more signs the Federal Reserve will raise interest rates in the coming months, bank stocks fell again Wednesday, with the American Banker index of the top 225 U.S. banks down 1%, at 552.2.
The sluggishness of the sector came on a day when Fed Chairman Alan Greenspan reiterated his view that interest rates will have to rise further in order to stem inflation.
In the second session of his semi-annual testimony to the Senate, Mr. Greenspan said the Fed's four 25-basis point increases since last June have not yet braked the economy enough. The so-called wealth-effect from the stock market has fueled economic growth, "engendering a set of imbalances that, unless contained, threaten our continuing prosperity," Mr. Greenspan told the Senate Banking Committee.
Many expect the Fed to raise interest rates another 75 basis points. Bank stocks have less to work with than they did during the sustained interest rate hikes of 1994 and 1995, when the Fed raised rates 300 basis points in a series of jumps, said Gerard Cronin, an analyst at McDonald Investments, a KeyCorp unit in Cleveland.
Back then, banks had the backdrop of merger and acquisition speculation to help sustain valuations. With more rate hikes on the way, neither a slow or quick pace will be good for bank stocks, Mr. Cronin said.