Everyone on Wall Street knows that hold means sell, and that an actual sell recommendation by an analyst means sprint for the exit because Chapter 11 is probably in the company’s future. In fact, only 1 percent of all analysts’ investment recommendations are suggestions to sell.

A recent survey by Reuters sheds some light on why “sell” is such a dirty word. It’s because analysts are afraid of retaliation by CFOs and other executives at the companies they cover. A whopping 88 percent of the analysts surveyed said the companies they cover would retaliate against a sell recommendation by cutting their firms out of lucrative stock offerings and merger deals.

Are they overreacting? Perhaps. An additional survey of 378 companies, conducted by Tempest Consultants, found that only 31 percent of those polled said they would exclude analysts’ investment banking teams from financing deals based on a sell recommendation. At least that’s how many admitted it outright.

The Reuters survey also found that analysts worry a sell rating will cut off access to key executives and information. Fifty-four percent of analysts believe companies would temporarily exclude them from briefings if they rated the company a sell. And it does happen. Indeed, 25 percent of companies said they cut off access after the analyst rated them a sell.

Ninety percent of analysts think private sessions with executives are important factors when maintaining contact with companies, the Reuters survey revealed. However, Regulation FD has strained this outlet since many companies are afraid to run afoul of SEC rules governing selective disclosure. See related article.

Bad Loans Rising

Nonperforming loans at U.S. banks jumped 26.6 percent last year compared with a 2.9 percent increase in 1999, according to a study by Weiss Ratings Inc. At year-end, loans with potential repayment problems reached $48.8 billion, up a staggering $10.2 billion from the $38.6 billion level recorded at the end of 1999.

“In the 1990s, many banks became complacent and loosened their underwriting standards on commercial lending,” said Martin Weiss, the agency’s chairman, in a statement. “Now, even though the economy is not yet officially in a recession, non-performing loans have already begun to surge—a harbinger of more troubles ahead.”

Profits at U.S. banks were also off for the first time in 10 years. Net income dropped 0.8 percent in 2000, to $81.8 billion from $82.6 billion in 1999. The decline in profits was even more pronounced in the industry’s return on assets (ROA), a common measure of bank profitability, which declined to 1.17 percent in 2000, off from 1.32 percent in 1999.

Despite the decline, 67 percent of the nations banks and thrifts actually registered higher profits in 2000.

Nonperforming commercial loans contributed the most to troubled borrowing. They were up 59.7 percent last year to $16.7 billion, after a 36.5 percent increase in 1999. “We expect to see further deterioration in the industry for at least another year or so until banks have had time to tighten lending standards and the economy starts to recover,” added Weiss.

The Europeans are Coming!

Look for more acquisitions of U.S. companies by European buyers. A report by Rueters says that low share prices and low interest rates are sure to peak European interest in making some bids for American companies.

What’s changing the deal landscape is that stock-and-cash and all-cash deals are becoming more fashionable now that share prices have been depressed. For much of the nineties, all-stock deals dominated the merger landscape, which made it difficult for the Europeans to play a big role.

Recent cuts in interest rates have also created the opportunity for investment-grade debt financing, which could make European companies with strong balance sheets likely candidates to conduct acquisitions.

Some of the sectors that can expect increased interest by European firms are telecommunications, pharmaceuticals, and utilities. In fact, European companies have already announced deals to buy $52 billion of assets in the U.S. so far this year, according to Thomson Financial.

Beyond Baseball Cards and Beanie Babies

The next time you see one of your employees surfing eBay on the Internet, it might be more appropriate to say “nice work!” instead of “get back to work!” That’s because more companies are using the online auction site to buy and sell excess goods.

Many companies are looking for used office furniture and computers in light of the recent belt-tightening due to the slowing economic environment.

Recently, Sun Microsystems Inc. listed five refurbished computer servers on eBay. They were scooped up by Carnival Cruise Lines for $172,000.

From the CFO.com “Brief” Case.

• Former U.S. Securities and Exchange Commission Chairman Arthur Levitt signed a deal to write a book detailing the financial world for the individual investor, the Knopf Publishing Group said yesterday. Levitt’s book will be published by Pantheon Books in hardcover in January 2003. Levitt said the book will be a distillation of everything he learned during his eight years at the SEC and three decades on Wall Street.

• General Electric Co. Chairman Jack Welch told shareholders that he expects the company to have a record year in 2001, despite the slowing economy. He said the Fairfield, Conn.-based conglomerate would continue to boost earnings and profit margins. In 2000, GE reported net income of $12.7 billion on revenues of nearly $130 billion. Welch is expected to step down as chairman at the end of the year.

• General Semiconductor Corp. reiterated its rejection of Vishay Intertechnology Corp.’s $428.2 million unsolicited takeover offer. It said it sees no reason to consider the bid. Vishay has offered to swap one of its shares for every two General Semiconductor shares. The takeover attempt could get nasty, as Vishay revealed that it was prepared to propose an alternative slate of directors at General Semiconductor’s annual shareholder meeting on May 9.