Structured Securities Analysts Are Bad For Your Portfolio

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Includes: BAC, BCS, C, CS, GS, HSBC, JPM, LEH, MER, UBS, WFC, XLF
by: Paul Kedrosky

Tuesday morning I got to pondering as I was scanning Institutional Investor magazine's list of the top banking firms for analyst research in structured securities. Those analysts, of course, are the folks that opine on current powder kegs like asset-backed securities, etc.

So, my question: Did the firms with the best research teams in structured securities do best as stocks during the the credit downturn from July 1st to August 15th? In other words, was the advice from the best teams followed by their own employers?

Well, by way of one answer, here is the average decline during the above period for the top and bottom five banks in structured securities research, as ranked by II:

  • Top 5: -16.7%
  • Bottom 5: -10.4%
The firms employing the best analysts, as measured by II, had their stocks fall further than the teams employing the lower-ranked teams. Admittedly, correlation isn't causation, but maybe this whole subprime thing has, in the end, been the damn analysts' fault.

Full data is as follows:

Rank Company Ticker 7/1 - 8/15 8/15 - Present
1 JP Morgan JPM -10.6% 3.6%
2 Lehman LEH -30.6% 7.2%
3 Bear Stearns BSC -26.2% 4.4%
4 Bank of America BAC -1.3% 3.9%
5 UBS UBS -15.0% 1.5%
6 Goldman Sachs GS -23.8% 12.1%
7 Credit Suisse CS -10.7% 2.1%
8 Wachovia WB -11.1% 7.3%
9 Citi C -10.0% 0.8%
10 Merrill MER -17.1% 6.0%
11 Barclay's BCS -9.8% -0.4%
12 HSBC HBC -4.1% 3.0%

Financial Sector XLF -11.1% 3.4%