CLSA Asia-Pacific Markets has pulled off a coup, hiring Mike Mayo to work with a newly hired team of analysts and associates to cover US financial stocks.
Mayo will join CLSA's US broker-dealer affiliate Calyon Securities (USA) in mid-April from Deutsche Bank, where he spent the past two years. He began his career at the US Federal Reserve in 1988 and has also worked for UBS, Lehman Brothers, Credit Suisse and Prudential.
Mayo will head the US financial research team which is intended to complement CLSA's existing banking sector coverage led by Daniel Tabbush. The new team will initiate coverage of between 30 and 40 US financial stocks, which represent approximately 20% of the total US market capitalisation.
CLSA has set itself a goal to become one of the top-five ranked research houses in the US. It will soon initiate coverage of the semiconductor and metals and mining sectors with further new hires coming on board.
The move to start covering US stocks follows CLSA's recent launch in Australia where the firm will offer primarily broking services to institutional investors. Highly ranked J.P. Morgan banking analyst Brian Johnson has joined CLSA in Sydney and sources say the team down under will grow to around 15 people by the end of 2009.
"As the investment banking model continues to implode and the banks effectively become SOEs [state-owned enterprises], investors will increasingly demand partisan, unconflicted analysis from research-driven brokers who have minimal credit risk and who do not prop [proprietary] trade," says CLSA chief executive officer Jonathan Slone in a written statement. "This is the model we have championed for the past 22 years. We know it works."
Mayo is part of a fraternity of research analysts who turned bearish on US bank stocks well in advance of the financial crisis. Mayo has been advising investors to sell bank stocks since 1999 as he felt they relied too heavily on asset-backed securities and, if home prices were to fall, they would present "a self-fulfilling prophecy of lower home prices and lower collateral, not to mention unique political fallout".
This perspective will put Mayo in good company at CLSA. The firm's well-known equities strategist Christopher Wood wrote as early as February 2003: "The American financial system remains a giant laboratory experiment in securitisation that has not yet been properly stress-tested on the downside."
The brokerage firm said it has been looking to expand into the US market for a while, but the plans have been accelerated by the financial crisis as "the rapid collapse of the markets has provided access to top-ranked talent looking for an alternative to the investment-banking model".
"The analysis of US equities through an Asian lens, examining the impact and influence of Asia's economies on US industries, provides US investors with an alternative view on domestic companies and benefits CLSA's Asian clients investing into US equities," says Jay Plourde, head of equities at Calyon Securities (USA).
CLSA has made a name for itself with independent, thought-provoking research and often contrarian stands. Even its competitors recognise the quality of its research and acknowledge that the brokerage firm is able to make calls and cover topics which more diversified banks with conflicting demands on resources often cannot.
Mayo's move follows that of another early bear on US banks, Oppenheimer & Company analyst Meredith Whitney. Whitney left Oppenheimer earlier this year to set up her own firm. She is well-known for calling a sell on Citi as early as November 2007. Much has been made in the media of the decision by Whitney's replacement at Oppenheimer, Chris Kotowski, to upgrade Citi to a hold earlier this month. But the media reports seem to have overlooked the fact that Kotowski's 'hold' comes after Citi's share price has dropped to around $3 now, down from $25 when Whitney sounded the alarm.
