Two new banking analysts at Lehman Brothers Inc., Diane B. Glossman and Michael A. Plodwick, rolled out equity coverage on 35 U.S. banks on Wednesday.
The analysts joined Lehman shortly after Travelers Group announced recently that it was acquiring Salomon Brothers, where the two had covered money-center and regional banks. Travelers owns Smith Barney, which has a team of banking analysts headed by Henry C. Dickson.
The new coverage, which includes seven "buy" ratings, 17 "outperforms," and 11 "neutral" recommendations, generally replicates the Salomon Brothers ratings. But Mr. Plodwick noted that several midsize banks that were rated "neutral" at Salomon had earned "outperform" ratings at Lehman because of their potential to be acquired.
The analysts filled a void in banking coverage at Lehman that dated from February, when Michael Mayo left the firm to take a job as top banking analyst at Credit Suisse First Boston.
Ms. Glossman and Mr. Plodwick said that they continue to be bullish on the banking industry because of the slow-growth economy, low inflation, and "the acceleration in mergers and acquisitions.
"As long as the U.S. economy continues to move forward, we anticipate the industry will be able to generate low-double-digit earnings-per-share growth based on single digit revenue expansion and productivity enhancements and continued usage of share repurchase," Ms. Glossman and Mr. Plodwick wrote in a report.
"This rate of growth has been accompanied by dramatic improved returns, which has helped to drive relative valuations up toward their historic highs-but have not set new levels relative to history."
The analysts awarded Citicorp a "buy" rating despite its exposure to the Southeast Asian markets.
"We believe that current concerns about various developing markets are overdone-with regard to their likely impact on Citicorp's near-term earnings prospects-but these will create ongoing volatility in this stock. We would use any weakness as a buying opportunity."
U.S. Bancorp-"a favored name among the large-cap super regional banks"- also received a "buy" rating. The analysts expect the company to "set new performance standards in all virtually all financial and profitability measures."
The analysts's project U.S. Bancorp's 1997 and 1998 operating earnings per share to be $5 and $6.20, respectively. Estimates for 1999 are between $7 and $7.50, which the analysts say is conservative. The 12-month target price is $140 to $150
Bank of New York, BankBoston Corp., Fifth Third Bancorp, and Summit Bancorp also earned "buy" ratings.
Ms. Glossman and Mr. Plodwick assigned "outperform" ratings to Banc One Corp., Chase Manhattan Corp., First Chicago NBD, First Union Corp., Mellon Bank, NationsBank Corp., and Wilmington Trust.
They assigned "neutral" ratings to Bankers Trust New York Corp., J.P. Morgan & Co., Pacific Century Financial, Republic New York Corp., and Synovus Financial.
However fast it grows, the Internet is sure to bring additional new entrants to the mortgage market, include financial services companies that don't currently originate mortgages who have contacted Mr. McMurray about setting up on-line mortgage sites.