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Why One Analyst Isn't Impressed with Chase's Latest Plans

Wall Street's love affair with

Chase Manhattan

(CMB)

continues to grow, especially after last week's announced restructuring plan. But one analyst who isn't impressed is Charlie Peabody of

Mitchell Securities

in New York. (Don't be fooled by the small firm; he cut his teeth as a superstar analyst at such firms as

Merrill

,

Drexel

,

Kidder Peabody

and

UBS

. He just tired of doing things

their

way, and prefers doing straight research to investment banking. He also happens to be a born skeptic.) Not long ago I interviewed Peabody for

TheStreet Recommends

Fortune

, and he was concerned about Chase's Asian exposure, which amounts to around $10 billion -- the largest of any U.S. money-center bank. Yet Chase has admitted to fewer problem loans than any of its peers. Company officials insisted their Asian portfolio has been "stress-tested,'' and that they had no major problems.

Enter the restructuring, which coincided with chatter that Chase may even agree to a merger with the likes of

Merrill Lynch

(MER)

. How does Peabody feel now -- especially since the stock is about 30% higher than when we last talked? "No differently,'' he says. "They've provided the investment community with a lot of concepts, and the marketplace seems to be working on what potentially could be rather than the fundamental realities.''

He adds: "I'm as bearish on Chase as I've ever been ... it's still a credit quality issue, and my belief is they have significant credit problems that they're praying will be healed by either a bailout or time or a normalization of the credit markets.''

If Peabody is right, prayers may not even help.

Speaking of Banks

This is the last place where you should expect to see investment ideas for unlisted stocks, but not every stock that trades on the pink sheets or OTC Bulletin Board is a fraud. There's actually quite an active market for solid companies that for one reason or another (often liquidity) don't meet the requirements to make it, in the very least, onto the

Nasdaq

. Among the most popular: community banks. And while prices for the entire group have lifted over the past year, Harry Eisenberg says there are still plenty of bargains. "There are opportunities all over,'' says Eisenberg, who publishes the Lafayette, Calif.-based

Walker's Manuals on Community Bank Stocks

. His criteria includes a price-to-earnings multiple of 10 to 15, a return on equity of 15% and a 1.2% return on assets. He also likes banks that are growing by adding branches or services. And most importantly, he looks for banks that reserve more than 100% for their problem loans.

Once Eisenberg gathers a list of candidates, he talks directly to bank officers, usually the president. Access usually isn't a problem because these banks tend to have little in the way of bureaucracy. Eisenberg asks about such things as the local economy. "These guys are real straight," he says "They love to talk to shareholders. Some will even volunteer a projection for next year. Talking to them is something few people do, but it's worth it because you can get a sense of what's going on. After talking to someone for 20 minutes you can tell how successful they are and what their backgrounds are.''

But the calls can also cause Eisenberg to drop a stock he already owns. "We can find that the competition in an area is getting worse, or that the local economy is difficult," he says. "You also want to be absolutely sure the loan portfolio is of good quality. And they'll usually talk about it." And if they don't talk, it doesn't really matter, because every quarter banks have to file their noncurrent loans with the

FDIC

.

The real payoff for investors in these banks comes when they jump to the Nasdaq. And banks often leave telltale signs that they're considering such a move by boosting their liquidity -- through issuing new shares, by doing splits or by declaring stock dividends. "Dividends in and of themselves don't mean anything,'' he says, "but they're an indication of what a company plans to do with their liquidity.''

Eisenberg's favorites, along those lines, include

County Bankcorp

(CYBK:OTC BB) in Lapeer, Mich., and

Emclaire Financial

(EMCF:OTC BB) in Emlenton, Pa.

And this tip: Eisenberg says that while these stocks tend to trade by appointment, the best of the bunch are actually quite liquid. Still, he tends not to invest more than $30,000 to $50,000. Even at that size, he says it can take several days to liquidate an entire position.

Short Positions

Duh!:

Welcome to the Daily Duh! Or at least that's what this'll be called if you keep me in mind the next time you see some disclosure by a company or an analyst or somebody else that was obvious to everybody but that analyst or company. You'll know it qualifies if, when you read it, you blurt out the word "Duh'' either silently our out loud.

For example, after the flap surrounding

Compaq's

(CPQ)

price cuts this column ran an item suggesting times could get tough for PC distributors, including

Inacom

(ICO)

,

Ingram Micro

(IM)

and

Tech Data

(TECD) - Get Tech Data Corporation Report

. Along comes

Donaldson Lufkin & Jenrette

analyst Kevin McCarthy last Friday. He lowered his estimates on Ingram, Inacom and Tech Data because "March sell-through rate have weakened somewhat when compared to the month of February." He added: "Vendor price reductions in April are expected to be significant...This magnitude of price decline could adversely impact average selling prices and reduce revenue growth rates in the second quarter.''

Duh!

Wisecracker:

Carlton Bick, from

Arbor Capital

, emails: "Do you paraphrase the short story a fund gives you, or do you just let them submit it directly. What would you do if ------ partners stopped talking to you??'' (All I want to know is whether Carlton, who didn't sign his note, thought he was being anonymous. Wonder if he knows his name and firm's name showed up on the top of all of his emails.)

Warning:

I'm a reporter, not a financial planner, broker or investment adviser. As a result, I cannot, under any circumstance, give personal financial advice or respond to your queries regarding my opinion on individual stocks. So

please

stop emailing such requests to me!

Herb Greenberg writes daily for TheStreet.com. In keeping with the editorial policy of TSC, he does not own or short individual stocks. He also does not invest in hedge funds or any other private investment partnership. He welcomes your feedback at

herb@thestreet.com. Herb Greenberg also writes the monthly "Against the Grain" column for Fortune.