For Subscribers

Get the complete article now!

Five analysts and top management from twenty-five sector firms examine the eastern regional banks sector in this special 127-page Eastern Regional Banks issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info481.htm.

TWST: What issues have affected the regional banks in 2001? Are any specific to the Eastern banks?

Ms. Reeves: Issues that I look at for 2001 would include revenue challenges for the entire group, in addition to regulatory environment challenges. The Northeast has gone through a lot of consolidation in the past five years, and more recently these management teams have been focused on rationalizing the acquired businesses.

TWST: During last year’s Roundtable, you commented that the change to a Republican White House should have an effect on the banking sector. Has there been any impact yet?

Ms. Reeves: It’s not apparent just yet. But I would expect the administration to have more of a hands-off approach and let the markets dictate what should and shouldn’t be regulated.

TWST: Are the Eastern banks better prepared to handle the issues of credit quality and loan reserves than they have been in the past?

Ms. Reeves: In general, I don’t believe so. But it’s not a Northeast issue, it’s also in the West, the Southwest, and the Midwest. I believe that the entire industry has been milking reserves for far too long, and even as we conducted an analysis of the third quarter and the outlook for the year, companies were underreserved. They are better positioned from a capital perspective than they were in 1990, but I still question the level of reserves as an industry, as capital should be the last resort.

TWST: Currently, are there any stocks that may surprise investors long term?

Ms. Reeves: I believe Northern Trust (Nasdaq:NTRS) and Zions Bancorporation (Nasdaq:ZION) could positively surprise longer term. Northern Trust is a leading provider of Treasury management, master trust and custody, retirement, international and investment management services for corporations and large institutions. The company is a multi-bank holding institution with locations across the world. Northern had $1.7 trillion assets under administration and $330 billion assets under management at the end of the year. NTRS’ annual earnings growth rate slowed from 23% in the second quarter of 2000, to 12% in the first quarter of 2001, to a decline of 17% in the fourth quarter. For 2001, earnings grew by 1.6%, compared with 20% in 2000. Revenue per share rose by 1.4% over the last year, while expenses per share rose by 12.3%, which reflects the dramatic rise in credit costs in the fourth quarter. Nonetheless, NTRS’ fees as a percentage of revenues stood at an impressive level of 70% and trust fees represented 55% of revenues. In our view, the company’s credit quality measures need to be bolstered as it continues to have exposure to asbestos-related companies as well as Enron-related businesses. Longer term, I expect NTRS’ focused global strategy on asset management and its related businesses to prevail, which should continue to award shareholders with a premium valuation.

TWST: As a final word, what approach would you advocate that investors take looking toward 2002?

Ms. Reeves: Conservatism. I want to see conservative credit quality measures, a well-reserved franchise, and a diverse earnings mix. I also want to feel extremely comfortable with management and their vision.

This special issue includes:

1) Eastern Regional Banks - In an in-depth (13,500 words) Analyst Roundtable, Nancy A. Bush, Managing Director at Ryan Beck & Co., Gerard S. Cassidy, Managing Director of Equity Research at RBC Capital Markets and Christopher Marinac, Managing Director at SunTrust Robinson Humphrey, examine the outlook for the sector including stock performance in 2001, regulatory outlook and share specific stock recommendations.

2) Super-Regional Banks - In an in-depth (4,100 words) Analyst Interview, Jennifer A. Thompson, Analyst at Putnam Lovell Securities, Inc., examines the outlook for the sector including and shares specific stock recommendations.

3) Eastern Banks - In an in-depth (3,100 words) Analyst Interview, Jacqueline Reeves, Managing Director at Putnam Lovell Securities, Inc., examines the outlook for the sector including and shares specific stock recommendations.

4) The TWST confidential Off-The-Record survey of management performance of nineteen sector firms asked market insiders about the ability of management teams to create shareholder value.

5) CEO interviews (average 2,500 words). Top management of twenty-five sector firms examine the outlook for their firm and the sector.