Stuart Z. Feldman has a vision for a firm that many have silently written off as a Wall Street also-ran.
Mr. Feldman, 29, sees a future in a name that some of the oldest bankers and biggest investors in bank shares still say with reverence: Morris A. Schapiro.
"M.A. Schapiro & Co. is not dead," said Mr. Feldman as he sat with hands folded in front of a portrait of the Wall Street legend.
Mr. Feldman, a former trader at U.S. Clearing and the New York Stock Exchange, is the new president of M.A. Schapiro Partners LP, a revitalized version of M.A. Schapiro & Co.
"I came to this position at the right time," said Mr. Feldman, who once wanted to be a money manager. "Banking and finance is the right industry to be in, considering the consolidation."
M.A. Schapiro, once one of the top firms in bank research and investment banking, had steadily lost its prominence on Wall Street. Last fall reports abounded that the firm was set to close its doors.
Mr. Schapiro is gone-he died two years ago at 93-but his legacy of buying cheap bank stocks for the long term has endured, Mr. Feldman said.
One of the first investment bankers to make a market in bank stocks, Mr. Schapiro had a big hand in some of the largest bank mergers of his time, including Chase's merger with Bank of Manhattan in 1955 and Chemical's merger with New York Trust in 1959.
It was he who got a wily young bank stock investor named Harry V. Keefe in the business. Mr. Keefe eventually went on to start Keefe, Bruyette & Woods Inc., a firm that specializes in bank securities. He now heads up Keefe Managers, a hedge fund investing exclusively in bank shares.
But just a year after Mr. Schapiro's death, reports circulated that his company was up for sale. Chairman George Reycraft, who had been with the company for more than 30 years, said in late November that the company was in "active discussions with a third party" to sell.
Mr. Schapiro's death was a key factor in the decision to sell, Mr. Reycraft said.
On Dec. 16, Mr. Schapiro's estate, whose beneficiaries include his two surviving children, sold the company through the investment banker Stamford Capital Group Inc. to private investors.
The new investors brought in Mr. Feldman, who promptly closed down the company's research, proprietary trading, investment banking, and mergers and acquisitions divisions. Thirty people were laid off.
"We took a look at the different groups and divisions and decided to realign ourselves into an asset management firm," said Mr. Feldman.
The new company oversees a growth and income fund, which is managed by Mr. Feldman, and a bank hedge fund.
Mr. Feldman said that M.A. Schapiro will remain in its longtime office in New York's financial district, but its quarters have been cut to half their former size.
"We are excited about the opportunity of bringing the Schapiro philosophy into the financial community," said Mr. Feldman.
"His philosophy being a long-term investment approach to banks and financial services."
Also powering the company is veteran bank analyst Charles N. Cranmer, who spent three years with the old M.A. Schapiro as a portfolio manager and director of equity research.
Mr. Cranmer recalled breakfasting with Morris Schapiro while a bank analyst at Goldman, Sachs & Co.
Mr. Schapiro would ask only a few questions, Mr. Cranmer said, but "by the end of the conversation I realized that he had gleaned quite a bit of information from me, but I had gotten only a little from him."
Like Mr. Schapiro, Mr. Cranmer is a value investor. "We aim to capture as much of the upside as we can in strong markets while minimizing losses in weak markets," he said. "We don't invest in things we don't understand."
Mr. Cranmer, a University of Pennsylvania business school graduate, started as a lending officer at First Fidelity Bank and went on to become a top bank analyst at Keefe Bruyette, Goldman, and Lehman Brothers. He was co-founder of a managed hedge fund specializing in financial services industry.
In the fourth quarter M.A. Schapiro Partners' hedge fund was up roughly 9.5% before fees, making its full-year return 45% before fees.
The S&P 500 returned only 31% and the Keefe bank stock index 40.5%, Mr. Cranmer pointed out.
"So far this year, the fund has kept in step with the Keefe bank index," he said.
Mr. Cranmer acknowledged that consolidation in the industry has made banks more attractive. "But you always have to consider price," he said.
He also contended that "there are far less synergies and cost savings than people think there are."
"Most bank managements today are totally focused on deals," Mr. Cranmer said. "But my question is, Who's minding the store? When you get bigger rapidly, it is very easy to lose control of the credit process."
Some of the fund's biggest holdings are in Chase Manhattan Corp., Lehman Brothers, and Unionbancal Corp., San Francisco.
But Mr. Cranmer said that he is steering the hedge fund more toward smaller banks such as BankAtlantic Bancorp of Fort Lauderdale, Fla.; North Fork Bancorp. of Mattituck, N.Y.; Valley National Bancorp of Wayne, N.J.; and National Bancorp of Alaska, Anchorage.
Investors are primarily generalists, Mr. Cranmer said. In this environment, generalists are driven by the need to put cash to work, he added.
"Many investors don't really understand the companies whose stocks they buy," Mr. Cranmer said. "Their fundamental analysis is cursory."
Nevertheless, the large swings in the market have created opportunities, Mr. Cranmer conceded.
An example is Wells Fargo & Co., he said.
"The company's deal with First Interstate drove the stock much higher than fundamentals justified," Mr. Cranmer said. "Everybody loved it. Then Wells reported a disappointing quarter, and most analysts began taking it off of their recommended lists. That's when we started to buy it."
That's the kind of contrarian thinking that prompted him to short Citicorp a week before it announced its deal with Travelers Group Inc. He still made money on the deal.
According to Mr. Cranmer, Citicorp at the time was overvalued relative to Chase, so he shorted Citicorp stock but bought Citi calls to hedge his bet.
"I'm a buy-and-hold kind of guy," Mr. Cranmer said.
"But that doesn't mean that I can't make money without a lot of risk."
