ST. LOUIS - When it comes to picking favorite banks, Stifel, Nicolaus & Co. analyst Joseph Stieven summarizes his philosophy with bumper-sticker bluntness: "Boring banking is better."
With that motto sitting on his desk, the bank examiner-turned-analyst has little difficulty choosing between a gray pin-striped banker and one making headlines for the latest whiz-bang idea.
"The last sizzling hot story I heard in banking was First City," said Mr. Stieven, referring to the Houston-based bank that went bankrupt in 1992.
"The Federal Reserve [Bank of St. Louis] taught me you can't bet on bad people, but it was here at Stifel that they pushed the fact that you can't win unless you've got a good jockey."
Close Ties to Banks a Help
That focus on strong management has marked Mr. Stieven's eight years at the regional brokerage and made him the kind of analyst whose calls are quickly returned by money managers.
But it is also his close relationship with banks that helps him spot opportunities for investors long before a national analyst recommends the stock at a higher price.
"I've never been able to scoop Joe on any of his companies," said James Schmidt, portfolio manager of the Freedom Regional Bank Fund with John Hancock Advisers.
The ability to spot hot stocks ahead of the crowd is critical to Mr. Stieven's reputation. Spreading copies of his own recommendations on a conference table, he raises his voice to an evangelical pitch as he thumbs though notes showing how Merrill Lynch & Co. has only recently begun to suggest a Midwest bank whose stock is three times higher then when Mr. Stieven began promoting it.
"If he doesn't call me with something, I get worried that I might be missing out," said a portfolio manager who asked not to be identified."
One of Mr. Stieven's best known picks is United Postal Bancorp., a St. Louis thrift that has agreed to sell out to fast-growing Mercantile Bancorp.
United Postal went; Public last year, in an offering led by Stifel Nicolaus. For those who invested in the offering the buyout by Mercantile will result in a six-fold return in about 18 months.
"If our clients didn't like that deal, we're in real trouble," said said Mr. Stieven, who had issued a strong buy recommendation on the shares.
Stifel has taken the unusual approach of linking research and corporate finance. Rick Maples, director of investment banking, goes on research calls to learn about the companies, not just to pitch deal ideas. Last year, Stifel advised on the sale of Magna Group's southwest Missouri bank to Capital Bancorp. At the same time Capital wanted Stifel to do the acquisition financing.
While some analysts focus on buyout potential as the chief reason to invest, Mr. Stieven sticks to fundamentals. "We look for banks with management that can do well on their own," he said. "We look at any acquisition as icing on the cake."
Not surprisingly, his recommendations are among recent acquisitions that will pay shareholders a premium. They include Omaha's Firstier Financial, acquired by Banc One Corp.; Great Southern Bancorp., Springfield, Mo., by Wichita, Kan.-based Fourth Financial Corp.; and Railroadmen's Federal, Indianapolis, by Huntington Bancshares, Columbus, Ohio.
Among Mr. Stieven's current favorites are banks that could be the next takeover targets. He favors Mercantile Bancorp. for its strong fundamentals and market position in St. Louis; recommends Union Planters Corp. because he believes the Memphis bank's earnings turnaround is the best in a decade; and considers Grand Rapids, Mich.-based Old Kent Financial a quality bank that is undervalued.
He also recommends three small Missouri banks, Capital Bancorp. of Cape Girardeau, which trades at a weak 103% of price-to-book value; Central Mortgage Bancshares, the largest remaining independent in the fast-changing Kansas City market; and Mississippi Valley Bancshares, the parent of Southwest Bank of St. Louis, a leading business lender.
All those banks meet Mr. Stieven's requirement of solid - even boring - management.
"Everybody has the same playbook. Those who execute, win," he says. "Execution is pretty boring, but boring banking also implies relatively strict credit standards. I've never seen a bank go bad because of that."
Beyond the investor community, Stifel has made a name for itself with banks that use the brokerage to raise capital or as a benchmark for measuring their own financial results.
Closely Watched Index
The firm has a 41-bank Midwestern index that is closely watched because it includes high-profile companies like Banc One as well as lesser-known strong performers.
Their common characteristic: all are above-average performers with a return on average assets of at least 1.2%.
On another level, Mr. Stieven has built a close relationship with key bank insiders who value his advice. At Union Planters, the analyst is remembered for pressing the Memphis bank in 1990 to buy back its stock from financially troubled Tucson Electric.
The bank repurchased 2.7 million shares - about 19% of its outstanding stock - at an average price of $9. Today, the shares trade at about $25.
Mr. Stieven's advice has not always won him kudos. In 1989, Stifel underwrote a $17-million-a-share offering for Illinois-based Landmark Bancshares, but after asset problems evaporated earnings the stock price plunged to $6 a share.
"It was the biggest black eye we've ever had," said Mr. Stieven, who says he erred by ignoring some red flags on Landmark's credit quality.
Dealing with angry investors, Stifel suggested that shareholders hang on for a likely buyout. The following year, St. Louis-based Magna acquired the company, and Mr. Stieven estimates the original investors have only now recovered their principal after four years.
Mr. Schmidt says that although Hancock lost money in the Landmark deal, he never lost faith in Joe Stieven.
"I'm comfortable that he would turn down a deal that he thought would low money for his clients," he said. "I wouldn't say that with everybody."Stifel, Nicolaus & Co.'sTop Picks Share price(*) Mercantile Bancorp. $44.75 Union Planters 24.00 Old Kent Financial 30.25 Capital Bancorp. 19.375 Central MortgageBancshares 13.75 Mississippi ValleyBancshares 15.25 Prices as of 4 p.m. Monday
