When it comes to bank stock analysts, there are only bulls and superbulls these days.
The most optimistic analysts urge investors to buy bank shares as aggressively as they can, and even the relatively restrained rarely suggest that clients do less than accumulate the stocks, according to a survey of analyst ratings by American Banker.
The survey also showed that many of Wall Street's most bullish analysts work for the investment banking firms that field the most aggressive teams of advisers to banks on mergers and acquisitions.
In theory at least, a "Chinese wall" is supposed to divide equity research departments from the dealmakers. But as one analyst put it, candidly but not for attribution, "The Chinese wall exists in China, not on Wall Street."
If the wall is under siege, it may be because the long consolidation trend in banking has left Wall Street with fewer major banking companies to divvy up as customers-and fewer big deals overall.
Also, the most active acquirers in the banking industry have gained the experience to do much of the work Wall Street once did for them. Banc One Corp. and NationsBank Corp. have their own executives who explore possible deals and do much of the work investment bankers traditionally were retained to do.
This means Wall Street firms are under more pressure than ever to offer some added value, investment bankers acknowledge.
"There are three reasons to hire an investment banker" for a bank acquisition deal, said Gerard Smith, managing director of the financial institutions group at UBS Securities, New York, a unit of Union Bank of Switzerland:
"One is to provide a go-between in negotiations so that both parties can work together after the deal," he said. "The second is to offer a fairness opinion, which is an insurance policy. The third is, it provides the most efficient access to the investor community."
In the case of UBS, its leading bank analyst, Thomas H. Hanley, helps rally investor support. One of Wall Street's most senior and influential banking analysts, Mr. Hanley is also the most bullish on banks, according to the survey.
Mr. Hanley follows 57 banks and has "buy" ratings on 51, plus a "strong buy" on Chase Manhattan Corp. He rates only three banks "hold" and none a "sell," a ranking that nearly all analysts avoid.
Mr. Hanley has no current opinion on Banc One Corp. or Mercantile Bancorp., two UBS investment banking clients with mergers pending. He rates Fleet Financial Group and Norwest Corp., two clients without pending mergers, as "buys."
To be sure, the existence of an active merger advisory team at a securities firm does not necessarily mean analysts at the same firm will be universally enthusiastic about bank stocks.
The analysts at Montgomery Securities, San Francisco, for example, rank among the less bullish even though their bank merger team, led by former bank analyst J. Richard Fredericks, is one of the busiest around.
But with more firms vying for investment banking fees while the number of banks dwindles, the pressure to say good things about clients and would- be clients is inevitably strong.
"If you're out there scouring for investment banking business, boy, it sure helps if you've got a 'buy' on their stock," noted Nancy A. Bush, associate director of research at Brown Brothers, Harriman & Co., New York, a firm not involved in advising banks on mergers.
Many analysts said that these concerns are not all that new-just more obvious as banks consolidate and competition for their advisory dollars becomes more intense.