SAN FRANCISCO - Many look at Mexican banks and see uncertainty. Campbell Chaney sees opportunity.
West Coast banking analyst at Rodman & Renshaw, Mr. Chaney said the recent devaluation of the peso and a likely recession will ultimately enable some U.S. institutions to get into the Mexican market more cheaply than expected.
The crisis will aggravate credit quality problems already considered high by U.S. standards, Mr. Chaney noted.
"The one word to describe what's going to happen in the next year is bailout," he said. "The last time you had a devaluation of the currency like this in the early 1980s, the banks were nationalized."
Mr. Chaney does not see that happening again, but he forecasts that Mexico's central bank will be forced to take a subordinate position in recently privatized banks in order to prop them up. He says it is too early to know which banks may need government assistance, but he says it will be only a minority.
The result, he says, is that as early as 1996 the central bank will be looking to sell its positions, possibly to outside investors. "I think it will open up the market to foreign ownership," he said.
Ultimately, U.S. banks that have planned to open their own Mexican subsidiaries may prefer instead to take a position in a one of that country's banks.
In the short term, he expects the economic downturn to slow the push by U.S. institutions into Mexico where they have relatively little at risk right now. "I think most people will be licking their wounds in 1996," he said.
Mr. Chaney's focus on Mexican banks is relatively recent. A former bank examiner and an analyst for much of the last decade, he has focused heavily on California institutions. Last year, he joined Chicago-based Rodman & Renshaw and added Mexican financial institutions to his coverage because a majority of the brokerage is owned by a Mexican investment firm.
Still, he is best known for his views on West Coast banks. During a recent interview, he suggested that investors hold on to major western banks, but says there is much reason to be optimistic that BankAmerica Corp., Wells Fargo & Co. and First Interstate Bancorp are well positioned for a tough competitive environment.
"I think 1995 is a year when the strong, the select, and the smart will shine and the others will be left behind," he said.
On BankAmerica, he predicts that the stock will rise to $60 a share by 1996, powered by internal earnings growth potential.
"I think that people underestimate the true strength of their operations," Mr. Chaney said. "If they were to get the out-of-state operations just up to standard, they could be earning 50 to 75 cents more per share."
He cites the San Francisco-based company's focus on expanded lending and growing its credit card business as factors. Less certain, is whether BankAmerica is finished with mega-acquisitions.
"I sure hope so, but I doubt it," he said.
Mr. Chaney said Wells Fargo is strong, but will face continued pressure on growth in its net income. Nevertheless, he said the bank is a leader in an industry trend away from traditional brick-and-mortar branch networks and toward alternative delivery systems.
For 1995, he expects Wells Fargo to continue to focus on commercial lending, which grew 18% last year, with a heavy emphasis on small business loans.
In Southern California, he likes First Interstate, but rates the stock "hold" because its recent performance has given it a strong multiple. "First Interstate is running on all cylinders," he said. "I don't know what else they could do to grow earnings per share."
He is cool on the prospects for the future of the thrift industry in California, saying the best upside for investors may be a buyout.
"I think the industry is dead with a capital "D" in terms of growing shareholders a market return like 15%," Mr. Chaney said.
He cites H.F. Ahmanson, Great Western Financial, and Golden West as three thrifts that control their own destiny. However, Mr. Chaney sees California Federal, Glendale Federal, and Coast Savings as thrifts that offer the greatest return to investors if they are bought out.