Strategic planning: managing for value: can banks make the transition?

Banks that do not manage to create value for their shareholders will suffer from low stock prices. To begin managing for value, a bank should conduct a “value audit” of all product lines and see which fall short of shareholders’ required rate of return. Then, the bank should focus on minimizing the low-profit operations and maximizing profit makers. Generally, it is best to compete solely in functions, such as commercial lending, that shareholders cannot perform profitably as individuals.
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Maddox, Jeffrey D.

Full text: [The Bankers Magazine] Sep/Oct 1989

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Weird Fundamentals?

In a recent interview, Tom Escott, a senior vice-president of Rauscher Pierce Refsnes (Dallas, Texas), where he watches US oil and gas stocks, discussed various aspects of the oil and gas industry. In the industry’s current climate, there is a growing confidence that a $17-$20 barrel of crude is the right range. The increase in prices caused by the wreck of the Exxon Valdez indicates that the current market is so tight that even losing 2 million barrels has an effect. This tight market is caused by the fact that US crude production is at a 28-year low and that, in 1989, it is possible that US demands for petroleum liquids will surpass the 1979 record high of 17.5 million barrels of oil per day. According to Escott, the entire oil business has become a mirror image of the boom of the late 1970s and early 1980s. While from 1979 to 1982, the industry was experiencing a 4-year peak, from 1986 to 1990, the industry is in a 4-year rolling bottom. Some instances of good news include the fact that the price of WTI oil was $19-$20 a barrel in the spring and summer of 1989.
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Anonymous

Full text: [Oil & Gas Investor] Sep 1989

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Retention or “Jumbo” Stock Incentive Rewards Come into Vogue

A number of companies are making long-term stock incentive compensation grants outside of the normal award cycle. The intent of these special awards is to create greater retention over the grant recipients. These “jumbo” grants, in addition to being oversized compared to normal grants, have particular characteristics. The retention aspect of the grants takes the form of vesting periods, stock price appreciation, and potential for award earnout. The driving force behind many jumbo grant programs starts when top management identifies a very select group of individuals that it believes represents the potential and talent from which will emerge the next generation of top management. There are often other reasons behind these grants, such as: 1. recognition of unusual, one-time achievement, and 2. positive reinforcement and comfort in times of stress. Since there are negative aspects to rewarding some while peers are overlooked, companies have established logical cutoffs for such grants. They then make jumbo grants to practically everyone not eliminated by the cutoff criterion.
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Bickford, Lawrence C.

Full text: [Journal of Compensation and Benefits] Sep/Oct 1989

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The Wild, Wired World Of Electronic Exchanges

Around the world, financial markets are facing different problems but increasingly are choosing the same solution – electronic trading. Anyone considering whether to automate an exchange must confront such fundamental issues as: 1. the types of trading for which automation is appropriate, 2. the feasibility of negotiating large transactions without human contact, 3. the possible evaporation of liquidity, and 4. the potential redundancy of brokers. Electronic trading offers greater speed and greater control because it provides more precise information about the market than is disseminated from floor markets or even over-the-counter telephone markets. Automation is also particularly suited to modern quantitative investment techniques. A big risk, however, is that people will come to rely on it and then it will break down. On most systems, traders complain that the system slows down when things get busy, which is precisely when they want to be trading most quickly. The most controversial issue among screen markets is whether to reveal the name of the trader entering each order.
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Hansell, Saul

Full text: [Institutional Investor] Sep 1989

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Stock Markets: Is Hongkong Healing?

Until the People’s Liberation Army turned its rifles on the Chinese citizens in Tiananmen Square in June 1989, the Stock Exchange of Hong Kong had been a solid performer for much of the year. After topping out at an all-time high of 3,310 in early May, however, the Hang Seng index dove by 33% to 2,100 before rebounding to the 2,400-2,500 range for much of the summer. The events in the Peoples’ Republic of China brought to the forefront questions about Hong Kong’s long-term viability as a key Asian financial services center. In an interview, Henry Cheong, a director of James Capel Ltd.’s Hong Kong office, discussed the future of the colony. Hong Kong still has a strong manufacturing and services base, a good telecommunications and transportation infrastructure, and very hardworking people. All of this continues to make Hong Kong a viable financial center. One unique characteristic of the Hong Kong market is that most companies have major controlling shareholders who run the businesses themselves. In bad times, they support their stock price, which should be good for the market.
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James, Sid

Full text: [Institutional Investor] Sep 1989

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Cyanotech’s Cash-Flow Crisis

On July 8, 1985, before a celebratory crowd basking under a hot Kona sun, Governor George Ariyoshi untied a maile lei and poured a flask of dark green Spirulina into a shallow canal. The auspicious occasion was the dedication of Cyanotech Corp.’s two acres of commercial algae ponds at the Natural Energy Laboratory of Hawaii at Keahole Point on the Big Island. Cyanotech co-founder Arthur Karuna-Karan then took center stage and thanked those in attendance for their kind words and good wishes. Karuna-Karan, the charismatic president and CEO of the two-year-old company, predicted a bright future thanks to the deep pockets of Continental Insurance Co. of New York, which had recently purchased 8 percent of Cyanotech’s stock. John Craven, director of the Law of the Sea Institute at the University of Hawaii, called it a “day of exaltation,” not only for the high-tech firm but also for the State. (excerpt)
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Jokiel, Lucy

Full text: [Hawaii Business] Sep 1989

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Ecology: Where There’s Muck, There’s Money

Increasing consumer concern about the environment, and regulations to enforce it, will be good for business and the economy. Those who will benefit include: 1. manufacturers that react quickly to the new trend, 2. specialist producers of pollution control equipment, 3. investors who spot the producers of the equipment first, 4. banks that finance the considerable restructuring that industry will have to undertake, and 5. developing countries, like Brazil, that use the environment as a powerful bargaining tool. The macroeconomic impact of the ecology boom is more difficult to gauge. It has been estimated that the annual cost of the Clean Air Act in the US will total perhaps 1/3 of the percentage of gross national product per year. One intriguing possibility is the creation of a market in pollution credits. This concept, introduced in the Clean Air Act, would allow companies that install expensive equipment to reduce the pollution levels of their plants to significantly below statutory levels to sell “unused pollution” to polluters exceeding the levels.
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Evans, Garry

Full text: [Euromoney] Sep 1989

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Money, Credit, and Security Markets: Common Stock Prices and Yields

Statistics from 1981 through Sep 30, 1989.
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Anonymous

Full text: [Economic Indicators] Sep 1989

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Corporate Scorecard: Kansas City-Area Public Companies Measured by Revenues, Profits, and Market Value

United Telecommunications solidified its place as the Kansas City area’s most valuable public company with a strong stock performance over the past year that more than doubled its market capitalization. The Westwood, Kansas, company sits atop Corporate Report’s 1989 scorecard of financial rankings with a $6.7 billion market value, almost twice that of runner-up Marion Laboratories at $3.5 billion. This is United Telecom’s second consecutive year in the top spot. The telecommunications company’s stock began to surge after the first operating profits from its $3.4 billion US Sprint Communications subsidiary were announced last fall. The company had already struck a deal to acquire majority control of Sprint — effective January 1, 1989 — from its joint venture partner, GTE Corp., for an estimated $720 million, a price that some analysts now say was a tremendous bargain. (excerpt)
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Hron, Frederic

Full text: [Corporate Report, Kansas City] Sep 1989

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Long-Term Incentives for Management, Part 2: Stock-Price Appreciation Grants

Management incentives tied to the appreciation in stock price have been remarkably resilient to ever-changing tax laws and stock market volatility and remain the cornerstone of long-term incentive programs. Stock options likely will continue to play a central role into the next century. The use of stock appreciation rights (SAR) has peaked and is expected to decline gradually as companies become more familiar with other cashless ways to exercise options. A factor that is creating uncertainty is the possible accounting change that would reduce stock option usage but probably increase SAR prevalence. Stock purchase rights may be an area ready for growth and innovation. A key challenge will be to convince managers to retain more shares delivered under these grants, thereby furthering the objectives of more closely aligning the interests of managers and shareholders and rewarding management for creation of shareholder value.
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Graskamp, Edward D.

Full text: [Compensation and Benefits Review] Sep/Oct 1989

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Pinstriped Bettors

IG Index (UK) and City Index (UK) both are members of various bookmakers’ associations. In addition, they both refer to what they do as betting, and both pay the government an 8% betting tax. The difference between traditional bookmakers and the 2 companies is that IG and City take bets on the movement of the stock market. There are 2 advantages to opening an account with City or IG: 1. Customers who bet pay no taxes. 2. IG and City stay open later than traditional stock exchanges. All of City’s trading is on credit, and it looks for a certain robustness in its clients. The one logical step left for the 2 companies to take is to give odds on the day-to-day movement of individual companies on the Stock Exchange. However, neither intends to do so.
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Diamond, John

Full text: [Business] Sep 1989

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The Crown Jewels of Bank Stocks

So far, 1989 has been a good year for Wall Street. For the first 6 months of the year, the Dow Jones Industrial Average rose more than 271 points, which was a 12.52% gain. The Standard & Poor’s 500 stock index jumped from 277.72 to 317.98, a gain of 14.5%. The gains have been nearly as impressive for banks. Statistics compiled by SNL Securities, a financial stock research firm, showed that bank stocks appreciated an average of 11.7% from the first of the year until June 22, 1989. Nearly half of the top 30 bank stock performers were in the state of California. The rise has been fueled by takeover speculation and actual mergers and acquisitions. Some gains have been remarkable. For example, at the top of the list was BSD Bancorp of San Diego, which had $371 million in assets at the end of the first quarter of 1989. It experienced record earnings in both 1987 and 1988, posting a net income of $2.7 million in 1988. During the first 6 months of 1989, BSD stock nearly doubled, posting a huge gain of 93.5%.
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Full text: [Bankers Monthly] Sep 1989

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Making Acquisitions Work for Shareholders

Although most of the top 250 US banks acquired other banks during the 1980s, few of these acquisitions have had a positive effect on the acquiring bank’s stock prices. To understand this phenomenon, FMCG Capital Strategies studied 240 bank acquisitions that took place between 1982 and 1987. The results indicate that many acquiring banks experienced stock price dilution – an effect that accumulated slowly over the years – and that some were eventually acquired by other banks. One of the largest obstacles to overcome is the large premiums acquirers are prepared to pay. An acquisition is likely to have a positive effect on the acquiring bank’s stock prices if the discounted cash flow value of the acquired bank is higher than the price paid for the stock of the acquired bank. Acquiring banks with a great deal of potential synergy, as well as the ability to control noninterest expense, are more likely to avoid the stock price discount that the average acquirer suffers.
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Moynihan, Jonathan

Full text: [Bank Administration] Sep 1989

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Area Public Companies Slow to Recover From ’87 Crash

Despite the Dow Jones Industrial Average’s two-year climb back from the stock market crash of 1987, which culminated last week with record highs, the stock prices of only about half of Wichita’s publicly held companies have recovered. Since the market plunged 508 points in October 1987, 10 Wichita-area companies have seen their stock prices rebound while nine firms have stock valued below precrash levels. In a comparison of stock prices of 19 Wichita-area public companies on Oct. 12, 1987, one week prior to the crash, and Aug. 30, 1989, those with increased stock prices are: Air Midwest, Doskocil Cos. Inc., Comcoa Inc., Kansas Gas and Electric Co., IFR Systems Inc., Fourth Financial, National Pizza, Collins Industries and Mustang Cos. Inc. American Restaurant Partners L.P.’s stock stayed the same at $10.l3. (excerpt)
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Groene, Lee Ann

Full text: [Wichita Business Journal] Sep 04, 1989

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Diversity, Market Fuel Monsanto

Two consecutive record quarters and a bullish stock market have helped push the value of Monsanto’s stock to a record high. The company’s stock price peaked Wednesday at a record price of $123.50. The stock’s previous record high had been $116.38, reached in Oct. 1983, according to information provided by Monsanto’s investor relations department. “The whole (stock) market has been up recently, but I think Wall Street has recognized that Monsanto has become a more recession resistant chemical company,” said Donna Smith, director of investor relations for Monsanto. “Diversification has made the stock a less risky investment if the economy should shift.” (excerpt)
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Dwyer, Joe, III

Full text: [St. Louis Business Journal] Sep 04, 1989

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Tech investors: Don’t watch the Fed, watch DRAM prices

The impact of the recent decline in prices for memory chips on the PC market is discussed. Memory-chip prices will have the same impact on sales of computers as the lowering of interest rates has on stock prices and the economy.
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Neff, Andrew

Full text: [PC Week] Sep 4, 1989

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Stuart Hall Stock Bobs About in Retail Waters

Stock analysts say a wave of hype in July that caused the price of Stuart Hall Co. stock to surge by about $10 a share has now destined the stock to drops and surges with little or no provocation, until it reaches a level more in line with reasonably expected earnings. Analysts maintain that they like the prospects of the Kansas City-based supplier of stationery, office and school supplies, but won’t recommend purchases of the stock until the price drops. “Obviously a lot of things are being done right, but right doesn’t mean $22 or $23 a share,” said Jerry Duggan, an analyst with Duggan & Co. Investment Securities in Overland Park. (excerpt)
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Kaberline, Brian

Full text: [Kansas City Business Journal] Sep 04, 1989

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Greening of N.Y. Environmental Firms

When Ogden Corp. announced last year that it would spin off part of its resource-recovery unit to the public, the investment community responded with little more than skepticism. Why should we care, they seemed to ask, about converting garbage to energy? Today, a month after Ogden Projects Inc. sold its stock to the public, investors can’t get enough of the company’s shares, which have risen more than 40% in value since early August. Welcome to the year of the Exxon Valdez, where the environment sells, and sells big. Sparked by fears that the world will spend much of the 1990s cleaning up its mistakes of the previous four decades, Wall Street and corporate America have discovered environmental companies. (excerpt)
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Belsky, Gary

Full text: [Crain's New York Business] Sep 04, 1989

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Out of Sight: Investors Have Bid Up Little Laser Stocks to Giddy Heights

Some investors are looking into the future and are aggressively bidding up the shares of 3 fledgling laser companies – VISX Inc., Taunton Technologies Inc., and Summit Technology Inc. Each of the companies is working on a laser system to be used to change the shape of the eye as a treatment for a variety of ophthalmic conditions, primarily near- and farsightedness. A story in the August 9, 1989, Wall Street Journal spotlighted the industry, and since then, the 3 companies have seen their share prices rise well over 100%. With a market of about 140 million corrective lens wearers in the US alone, photorefractive keratectomy (PRK) could begin to show huge profits as soon as the Food & Drug Administration approves the procedure and ophthalmologists begin buying the equipment. Very early tests of PRK have been promising, with good results and minimal complications. Walter Stark of the Wilmer Eye Institute feels that PRK should be reserved for special cases in which it is impossible to function with glasses or contact lenses and predicts that few will opt for the procedure.
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Savitz, Eric J.

Full text: [Barron's National Business and Financial Weekly] Sep 4, 1989

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Investors Want $70 Million From Sci-Atlanta

A federal judge has granted class-action status to a year-old complaint against Scientific-Atlanta Inc. that could involve as many as 35,000 of the company’s current and former shareholders. The complaint was filed in September 1988 by former Scientific-Atlanta shareholder Russell Henderson, who contends the company gave false information to the public in the early 1980s to inflate its stock price. On Aug. 21, U.S. District Judge Robert L. Vining Jr. certified Henderson’s complaint as a class action, meaning it will represent as many as 25,000 to 35,000 investors who bought Scientific-Atlanta common stock between Jan. 1, 1981, and Aug. 31, 1983. Henderson is seeking $70 million in damages on behalf of the shareholders. (excerpt)
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Allison, David

Full text: [Atlanta Business Chronicle] Sep 04, 1989

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