Keep industry out of banking


"Ford is learning that it can't fix a bad loan with a factory recall." The speaker is Harry Keefe, one of the deans of banking industry analysts. He's referring to Ford Motor Co.'s not-so-profitable experience as the owner of San Francisco-based First Nationwide Bank. The reason he's talking about First Nationwide, a $21 billion savings and loan acquired by Ford in 1985, is because the Treasury Department is talking up the idea of selling banks to industrial companies.

"Running a $20 billion thrift is child's play compared to running a $20 billion commercial bank," says the talkative and opinionated Keefe, 67, who founded Keefe, Brueyette & Woods, a brokerage firm best known for its banking industry research. He now runs Keefe Managers in New York, a private hedge fund that engages in buying and short-selling bank and thrift stocks.

Keefe told me that most of the bankers he knows and he knows most of the heads of the largest institutions confide that they don't want anything to do with industrial companies.

"The solution is that there's plenty of money from normal investment resources to go into the banking world without going to industry," he says. "The idea that you can't bring in capital unless you bring in industrial companies is baloney."

He cites one pension fund he knows of that already has $1.8 billion in bank stocks, and wants to buy more. And he's working with an investment group that has $500 million to invest in banks.

Which ones? Some are merger candidates, but he's mostly looking at large and small institutions that have clean balance sheets and strong returns on equity.

He still expects several hundred additional bank and thrift failures in New England, but he mentions one he wouldn't disclose the name that has already taken huge writeoffs and sells at a 30 percent discount of its book value. He's buying it. Among larger banks, his favorites include Bank of America, Detroit's NBD Corp.; and Winston-Salem, N.C.-based Wachovia Corp.

BUYING OPPORTUNITY?: When stocks are out of favor it's often the time to buy them especially in technology, where volatility is a way of life. By that standard, one of the hottest computer stocks of recent years, Compaq Computer, should be a screaming buy. That's what analyst Bruce Lupatkin of San Francisco-based Hambrecht & Quist says, now that the stock sells for about half last year's high; it closed at down 1/2 yesterday on the Big Board. Lupatkin acknowledges that "the remainder of 1991 is not likely to show much promise," but he believes the company is taking steps to remedy the situation. But one broker I know says: Not so fast! While he doesn't argue against the theory that the "stocks of good companies can come back," he said that "even IBM can't come back. And Compaq isn't IBM."

MEMO CENTER: To M.P. Burke, who wants to know more about ADRs: ADRs are American Depository Receipts. They're negotiable receipts issued by American banks to make it easier to buy and sell shares in a foreign company. They're traded over the counter and on major stock exchanges. They're the most convenient way for an individual to purchase foreign stock that isn't listed on domestic exchanges. One of the most popular ADRs is Telefonos de Mexico, with two classes of shares that trade on both the NASDAQ and the NYSE.

THE BOOKSHELF: The latest edition of Business Week's annual Guide to Mutual Funds is now at bookstores. Besides including performance data on 1,165 funds, it explains various nuances associated with mutual-fund investing.

PARTING SHOT: In the current issue of Grant's Interest Rate Observer, a cartoon by illustrator Hank Blaustein shows a patient talking to his psychiatrist. The patient says, "On even days, you see, we buy growth stocks. On the odd days, we buy cyclicals."

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