On the day that
Credit Suisse First Boston
analyst Mike Mayo did an unusual thing and put a sell rating on four big bank stocks, Wall Street was talking less about Mayo's courage in making the call than about the timing of it.
Mayo's downgrades this morning of
to sell from hold did heavy damage. Citigroup slid 4%, J.P. Morgan dropped 1.4%, Bank One shed 2.2% and Chase fell 3.8%.
Part of that was the extreme rarity of sells on Wall Street, where brokers have come to use hold to mean sell, buy to mean hold, strong buy to mean buy and so on. But a good deal of it had to do with the way the market's been trading. With earnings season out of the way, economic news on the light side and the market generally feeling cautious, volume has been extremely light lately -- about 100 million shares fewer than the norm. It's a recipe for volatility. Even a vague rumor can send a stock spiraling. A well-placed downgrade can do even more.
"He picked his spot," gripes one hedge fund manager of Mayo's call, adding that she was "picking up after him all day." And it wasn't just the light news day that was working in Mayo's call's favor -- the charts on the banks looked horrible going into this morning.
'We don't want so many shades of gray,' CSFB's Mike Mayo says of his bold sell rating. 'Our job is to give investment advice.'
"I was looking at a note I made Friday afternoon," says Dick Dickson, technical analyst at
Scott & Stringfellow
in Richmond, Va. "It said, 'The financial stocks are weak.' You look at the BKX
the Philadelphia Stock Exchange/KBW Bank Index -- that thing is getting whacked."
And John Bollinger, president of
, notes that the downgrade comes when the banks were already caught in selling momentum. "If it's a downgrade, how come it broke two days ago?" he asks. "Does this mean Wall Street widely anticipated this downgrade or does it mean this analyst knows how to read a chart?"
But if vulnerable-looking charts helped Mayo pick his spot, he's not letting on. "I wasn't aware of the technicals," he says, joking, "I wish I
was -- I would have been more forceful in the call."
Mayo says the downgrade, hinging on concerns that banks' business will be hurt by third-party Year 2000 problems (here he cites potential problems in emerging-market banks), was really just "a formalization of a position we've had, in more certain terms."
"We don't want so many shades of gray," he says. "Our job is to give investment advice" and not leave clients struggling to figure out what different ratings really mean.
And for all the talk (mostly from people who got hurt by the downgrade) over how Mayo's just a publicity hound, you have to respect the risk he's taken. One of the reasons that analysts don't give sell ratings is that it can damage their relationships with companies -- and without a good relationship, it's hard to get needed information. For analysts like Mayo who cover financial companies, there's an extra reason: Financial companies employ securities analysts. Piss people off, and you jeopardize your future.
Was Mayo showboating a bit with his call? Probably. But it showed conviction, too, and that's a welcome thing to see on Wall Street.