Monday, November 07, 2011

Mike Mayo's Book & Essay In The Weekend WSJ

I read Mike Mayo's extended article/book excerpt in this past weekend's edition of the Wall Street Journal. Sad to say, I was underwhelmed.

My memory of Mayo as a capable bank analyst goes back to my days with Chase Manhattan Bank in the the early 1980s. Back when Dick Bove, Bob Albertson, Tom Brown and Sally Pope were frequently on page one of the daily American Banker.

Despite taking two pages to write it, Mayo's point boils down to one he doesn't actually state, and apparently doesn't choose to acknowledge, i.e., equity research shouldn't be housed in the same firm as underwriting or other services bought by the banks and non-bank financial firms being evaluated by the analysts.

We already learned this in the late 1900s when technology analysts fawned over the companies that their firms brought to market via IPOs. It's not a new revelation.

Mayo tells the same story over and over. How he virtuously made tough 'sell' calls, only to be reprimanded, gagged, taken aside and 'talked to,' cut off from contact with management of the firms he followed, etc.

I don't doubt that Mike made those tough calls. Somehow, I don't think he's so naive as to be ignorant of what would happen when he did. He is evidently still and MD these days, but now has slipped to being one at Credit Agricole Securities.

Perhaps he should note that Tom Brown and Meredith Whitney finally just struck out on their own. Brown runs a financial sector portfolio, and, thus, is suspect every time he opens his mouth to tout the shares his fund owns. Whitney went the pure research route, and appears to be keeping her firm afloat.

It's no secret that analysts who truly have conviction eventually want to, or ought to, run portfolios. Mayo would have been able to have achieved legendary status, according to the article, had he shorted massively in late 2007, when he went on CNBC to predict the coming financial crisis.

Of course, one problem with the transition from analyst to portfolio manager is that the former are industry-focused. So when they run sector portfolios, they necessarily are exposed to sector cycles, which I would think could make for some pretty lean times. Not to mention the tendency to hype positions which are losing money, as Tom Brown now does with sickening regularity concerning BofA.

Still, I expected more, and better, from Mike Mayo. If all he has to tell us is whining about a conflict of interest that's existed since the dawn of sell-side analysis, well, that's not news.

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