Credit research poll 2002 - HIGH GRADE

Credit analysts get back to fundamentals	Declarations of independence
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	Methodology and voter profiles

Best overall research team in high-grade
02	01	Scores	Telecoms	Gen Industries	Autos	Consumer	Utilities	Financials	Credit Strategy	*Total*
1	1	Morgan Stanley	426	517	534	456	333	472	501	*3,239*
2	8	Goldman Sachs	614	312	391	346	411	400	598	*3,072*
3	3	Merrill Lynch	386	492	405	336	313	469	472	*2,873*
4	2	Deutsche Bank	469	434	424	338	306	425	446	*2,842*
5	–	JP Morgan	426	402	438	372	346	389	416	*2,789*
6	5	BNP Paribas	414	342	441	302	352	354	462	*2,667*
7	4	CSFB	397	392	359	281	293	444	388	*2,554*
8	9	UBS Warburg	393	410	514	317	352	_	408	*2,394*
9	6	Lehman Bros	365	304	349	254	255	356	339	*2,222*
10	7	SSMB	369	291	250	263	266	284	311	*2,034*
11	10	DrKW	291	230	329	269	270	263	273	*1,925*
12	11	Barclays Capital	421	237	247	210	244	220	321	*1,900*
13	13	Bear Stearns	346	167	203	206	208	227	244	*1,601*
14	–	ABN Amro	271	190	191	167	205	191	225	*1,440*
15	12	HSBC	274	196	151	119	189	196	152	*1,277*
16	14	Soc Gen	238	152	162	126	168	163	202	*1,211*
17	–	Commerzbank	168	140	167	115	177	_	177	*944*
18	15	Bank of America	233	74	152	64	127	121	136	*907*
19	–	ING	178	77	158	115	166	_	161	*855*
20	16	RBS	154	110	83	97	131	94	184	*853*
21	18	SEB	84	51	70	_	70	_	66	*341*

Best in high-grade telecoms
Felix Kaiser and team
Goldman Sachs

Best in high-grade TMT
*2002*	*2001*		*% HG votes*	*Score*	*Euro-12 only*	*UK-only*	*?10bn+*	*?5-10bn*	*?1-5bn*	*?0-1bn*
1	8	Goldman Sachs – Felix Kaiser, Loic Cathenod	36.0%	614	1	1	1	1	1=	2
2	1	Deutsche Bank – Anja King&Nesche Yazgan	22.0%	469	2	15	8	3	1=	3
3=	2	Morgan Stanley – Matthew James&Team	22.1%	426	5	3	10	13	8	1
3=	–	JP Morgan – Scott Marchakitus&Team	22.3%	426	4	16	4	6	6	7
5	13	Barclays Capital – Laura Winchester&Stephan Michel	18.8%	421	3	7	7	15=	3	5
6	5	BNP Paribas – Rick Deutsch, Jean-Yves Guibert	24.9%	414	6	9	9	8	4	6
7	4	CSFB – Andrei Gorodilov	26.6%	397	8	4	14	7	7	4
8	9	UBS Warburg – Duncan Warwick-Champion&Team	18.6%	393	13	2	13	4	5	11
9	6	Merrill Lynch – Tony Moverley, Patrick McCullagh	17.8%	386	7	8	5	5	10	8=
10	7	SSMB – Tom Crawley, Kay Turner, Peter Dalena	17.3%	369	9	6	6	10	9	8=
11	3	Lehman Bros – S.Martin, J.Lamirel, T.Spineanu	19.1%	365	10	10	2	2	11	15
12	14	Bear Stearns – P.Crate,S.Surtees, L.Landeman,C.Bhogaita	18.5%	346	11	13=	3	9	12	14
13	12	DrKW – J. Pearce, B. Bugg	15.3%	291	12	13=	19	16	13	10
14	11	HSBC – Julia Campbell, Satyajit Chatterjee	11.1%	274	14	11	12	17	17	13
15	10	ABN Amro – Roger Appleyard	13.1%	271	16	17	16	18	15	12
16	15	Soc Gen – J. D’Virgilio, S.Mann, M. Rahaman	11.2%	238	15	18	17=	11=	14	18
17	18	Bank of America – Peter Plaut, January Streeter&Team	11.8%	233	19	12	11	15=	16	19
18	16=	ING – Mark Harmer	9.2%	178	18	19	17=	14	21	17
19	–	Commerzbank – Vladen Andriouchtchenko	9.9%	168	17	20	20	11=	18	16
20	16=	RBS – Tim Jagger	7.6%	154	20	5	15	20	19	20
21	20	SEB Merchant Banking – Francis Dallaire	3.9%	84	21	21	21	19	20	21







Kaiser (left) and Cathenod: won’t publish anything that is not considered and well informed

This has been a good year for the Goldman Sachs team, which rose from eighth to second in the rankings of best high-grade research teams. In the telecoms category, the firm won by an enormous margin, and its number one position in utilities was also convincing. Both of these teams are led by senior analyst Felix Kaiser.

Kaiser and his teams are quick to say that one of the main reasons for their success this year is that they will not publish anything unless it is considered and well informed. If there isn’t enough coverage of a company they won’t issue a recommendation. If something happens, they will wait until the next day to comment.

However, it’s in the face-to-face contact that their research provokes that Kaiser says his team can really add value. That way, they comment on, and learn more about, credits that they are unwilling, or unable, to publish recommendations on. So the team is often on the road.

The telecoms “team” actually comprises just Kaiser and Loïc Cathenod. So though Cathenod is the lead analyst for telecoms equipment (he spent five years at a telecoms consultancy before joining Goldman Sachs), and Kaiser for telecoms operators, the distinction is there to filter investor enquiries only. In reality, they produce all research together. The same is true in utilities, where Cathenod and Paul Griffith work together without distinctions.

Last December, when Kaiser and Cathenod first published their new scoring model, almost all the calls they made in telecoms worked well. In particular, they identified Telecom Italia, BT, Olivetti and Telefónica as sector outperformers. But making those calls wasn’t easy: Olivetti was hard to judge earlier in the year because of market volatility, and Telefónica because of its exposure in Argentina.

“Our recommendations stem from the underlying credit stories, which is how you can end up being controversial,” says Kaiser. “With Telefónica, spreads reacted heavily to events in Argentina and the bonds were cheap, so we said they were a good buy, though investors were uncomfortable at the level of uncertainty in the region. But we thought it was a strong company regardless, and we felt the market over-reacted.”

In the coming year, Kaiser and his teams are moderately overweight in telecoms companies and neutral in utilities. The underlying trend for fundamentals in telecoms is good, they say, but there is still a lot of volatility caused by France Telecom.

“Expect utilities to perform in line with the market, although they often outperform when other sectors turn volatile,” says Kaiser. “What’s important is where credits are going. Ratings, whether you agree or disagree with them, are just a fact of life.”

Tessa Oakley

Best in high-grade utilities
Felix Kaiser and team,
Goldman Sachs

Best in high-grade utilities (including energy)
*2002*	*2001*		*% HG votes*	*Score*	*Euro-12 only*	*UK-only*	*?10bn+*	*?5-10bn*	*?1-5bn*	*?0-1bn*
1	6	Goldman Sachs – Felix Kaiser, Loic Cathenod, Paul Griffith.	24.7%	411	1	1	1	1	4	6
2=	2	BNP Paribas – Marc Watton, Adrien Fourcade	23.7%	352	4	4	3	13=	3	4
2=	13	UBS Warburg – Tom Lyons&Team	16.6%	352	2	21	5	2	5	9
4	–	JP Morgan – Maria Garcia-Lomas&Team	16.6%	346	3	10=	2	6=	6	7
5	1	Morgan Stanley – Jeff Burch&Team	20.1%	333	7	2	4	6=	7	1
6	3	Merrill Lynch – Elissa Johnson	16.9%	313	9	3	9	18	1	5
7	4	Deutsche Bank – Anke Richter	16.0%	306	6	8	14	5	2	8
8	5	CSFB – Patrick Hughes	17.8%	293	8	7	10	4	9=	3
9	11	Dresdner Kleinwort Wasserstein – Joshua Galaun	13.5%	270	5	9	19	10=	9=	2
10	7=	SSMB – Michael Ridley	13.0%	266	10	13	6	16	9=	10
11	9	Lehman Bros – Tatiana Spineanu, Mark Wade	10.8%	255	13	12	11	3	12	11=
12	7=	Barclays Capital – Neil Beddall&Andrew Moulder	12.1%	244	11	10=	15=	6=	8	11=
13	14	Bear Stearns – Jens Jantzen	11.4%	208	12	16	18	6=	14	13
14	10	ABN Amro – Claire McGuckin, Michael Charlton	10.2%	205	14	18	15=	10=	13	15
15	12	HSBC – Fran Hutchinson, Rodolphe Ranouil	8.0%	189	18	6	8	20	16	14
16	–	Commerzbank – Roberto Pozzi	9.5%	177	16	15	12	17=	15	17
17	18	Soc Gen – Herve Gay	8.4%	168	15	19	7	17=	19	18
18	17	ING – Mark Harmer	8.7%	166	17	14	20	10=	17	16
19	15	RBS – Andrew Burton	7.4%	131	21	5	17	15	18	20
20	16	Bank of America – Michael Dolan	6.7%	127	19	17	13	13=	20	21
21	19	SEB Merchant Banking – Carin Frost	3.6%	70	20	20	21	19	21	19

See profile above for ‘Best in high-grade TMT’ – also won by the same team.

Best in high-grade general industries
David Meade and team
Morgan Stanley

Best in high-grade general industries/manufacturing
*2002*	*2001*		*% HG votes*	*Score*	*Euro-12 only*	*UK-only*	*?10bn+*	*?5-10bn*	*?1-5bn*	*?0-1bn*
1	4	Morgan Stanley – David Meade&Team	27.9%	517	1	1	2	1	1	2
2	5	Merrill Lynch – Simon Atkinson, Beth Fusco	21.1%	492	3	2	1	3	3	3
3	1	Deutsche Bank – Andrew Griffiths, James Maxwell	23.3%	434	2	4	5	6	5	1
4	9	UBS Warburg – Michael Gray, Eddie Clarke&Team	23.3%	410	6	3	3	2	6	7=
5	–	JP Morgan – Emmanuel Weyd&Team	20.2%	402	4	8	7	3	2	7=
6	2	CSFB – Said Saffari	23.4%	392	5	5=	6	4	7	4
7	7	BNP Paribas – Vivek Tawadey, Cyril Benayoun	19.9%	342	8	10	9	9	4	6
8	6	Goldman Sachs – Paul Griffith, Thomas Mazarakis	14.6%	312	7	11	4	8	11	5
9	8	Lehman Bros – Mark Wade, Pilar Gomez-Bravo	14.1%	304	9	12=	8	5	8	12
10	3	SSMB – Bob Buhr, Elena Ciampichetti	14.0%	291	10	5=	11=	7	9	9
11	14	Barclays Capital – Jon Scoffin, John Dockery&Suzanne Cassidy	12.8%	237	12	12=	10	15=	10	14
12	13	DrKW – A.Muthreich, C.Boulanger, R.Fennema	13.5%	230	11	14	13	10	12	10
13	12	HSBC – Simon Cowie, Rodolphe Ranouil	9.0%	196	17	7	11=	13	13	15
14	10=	ABN Amro – Robert Manning, Hans Peter Lorenzen	9.8%	190	15	15	18=	11	14	11
15	10=	Bear Stearns – J.Jantzen, V.Whitehead, S.Underhill	11.9%	167	13	16	16	14	17	13
16	16=	Soc Gen – Mustaq Rahaman, Philippe Landroit	7.1%	152	16	17	14	15=	15	16
17	–	Commerzbank – Dusan Meszaros	6.8%	140	14	21	15	12	18	17=
18	15	RBS – Tim Jagger, Rob Orman, Chris Saysell	5.8%	110	19	9	17	17	16	20
19	16=	ING – Mark Harmer, Shaun Griffiths	4.1%	77	18	20	19	19	19	18
20	18	Bank of America – Peter Din	3.6%	74	20	18	18=	20	20	19
21	19	SEB Merchant Banking – Ebba Lindahl, Karin Erlander	2.5%	51	21	19	20	18	21	17=







David Meade

“Research is definitely becoming more competitive, and people are throwing more resources at it,” says David Meade, whose team has won this year in high-grade general industries and high-grade autos. “A lot depends on maintaining relationships with investors – that’s the crux to this.”

Meade travels a lot to talk to investors but he says it is becoming increasingly important to talk to issuers as well. Since Enron went bankrupt, some issuers have even been calling him. He also talks to the bank’s equity analysts. “Equity and debt analysts share views more as markets increasingly tend to react to developments interdependently,” he says.

Meade’s goal is to make his research insightful, providing long-term fundamental analysis and good, quick trade ideas. Especially in post-Enron times he says it is important to make investors aware of as much as possible before they invest. “You have to focus where people care, which is on the issuers that trade most,” he says. “But if things don’t make sense, you’ve got to ask questions. I would never recommend something I didn’t feel comfortable with.”

One of the main focuses of Meade’s research is to draw on constant themes and messages about issuers’ cashflows, business models and relative margin strengths and weaknesses. He has been in credit research for about 13 years, spending four years at Standard&Poor’s before joining Morgan Stanley. He took over high-grade general industries and autos last July, having worked on them before. His team comprises Emma Bewley, who is new to credit research since last November, joining from investment banking at Morgan Stanley.

Key calls in the past year included Ford Motor, whose weakness the team identified early, preferring DaimlerChrysler and General Motors, and Fiat, which they also thought would weaken. In general industries, Rolls-Royce at the turn of the year was a good call, although it went slightly against consensus – Meade and Bewley upgraded it to outperform at a time when negative market sentiment was driving the credit wider.

In the coming six to 12 months, Meade and his team say the outlook is mixed. In autos, the general credit quality is negative because of weakening cashflows as car sales face increasing pressure. Meade still prefers General Motors and DaimlerChrysler to the exclusion of all other credits in this sector. “There are few outperformers at this stage,” says Meade. “The market is pricing more aggressively given the lack of supply, and spreads are coming in.”

In general industries, the team says aerospace credits are weak, and paper and materials are “probably OK”. Chemicals company Rhodia, they say, risks slipping to sub-investment grade levels, while power and engineering companies Alstom and ABB have widened but are still volatile and vulnerable to further widening.

Meade would like to implement better global coordination with analysts in other time zones, to better serve investors’ ever-changing needs. It is difficult, he says, to judge what content is best to include and how best to disseminate it. “The market is evolving and there are many types of investors who all want different things,” he says. “We work closely with the strategists to best serve those needs, which so far seems to have been successful. I hope that will continue.”

Tessa Oakley

Second in high-grade general industries
Simon Atkinson and team
Merrill Lynch

Simon Atkinson: using the eye of an accountant

In February, Simon Atkinson delivered his team?s outlook on the general industries sector to an audience of over 200 investors at Merrill Lynch?s credit conference in Rome. The size of the audience was a little intimidating, he says. It reminded him of doing the Latin oration at school.

In the current climate, Atkinson, along with Beth Fusco, his co-analyst in this sector, agree that investors need their research for clarification more than ever. That approach seems to be working, as the team achieved a close second place in this investor poll. ?Often, investors are looking for second opinions, especially in these times,? says Fusco. ?People need a lot of reassurance. They can?t possibly read all the research that lands on their desk, so with the year-ahead piece we went out on a roadshow and said ?read our lips? instead.?

Between them, Atkinson and Fusco have about 35 years? experience as credit analysts, including a combined 13 years at Moody?s. Atkinson began his career as an accountant, so in these post-Enron times they are well positioned to analyze company management and see things their competitors might miss. ?You need to work out which management teams are conservative by what they say but also by what they?ve done in the past,? says Atkinson. Fusco adds: ?When I look at financial statements, I always ask, ?What?s missing in this picture? What are they hiding???

Fusco is new to high-grade general industries (this year her team was voted first for high-yield general industries) and she says her approach is more micro than macro, looking at the sector from company levels upwards. Between them, they say they try to get quick reactions to events out to investors. This is in contrast to this year?s winning Goldman Sachs team, which prefers to wait until the next day and give a more considered reaction. Atkinson and Fusco also put their short-term research into context by producing larger publications that comment on companies? overall relative value. Other analysts say they would also like to publish similar reference-type material but don?t seem to find the time.

In the coming six to 18 months, Atkinson and Fusco say Railtrack offers a good short-term investment, and that Stagecoach is of solid investment-grade quality and will remain so. Its rating is BBB but its bonds are trading at BB spreads. In chemicals, however, they say it is still too early to talk of a recovery.

Tessa Oakley

Best in high-grade autos
David Meade and team
Morgan Stanley

Best in high-grade autos
*2002*	*2001*	?	*% HG votes*	*Score*	*Euro-12 only*	*UK-only*	*?10bn+*	*?5-10bn*	*?1-5bn*	*?0-1bn*
1	?	Morgan Stanley – David Meade & Team	29.3%	534	2=	1	2	3	2	1
2	?	UBS Warburg – Michael Gray & Team	33.3%	514	4	2	3	1	1	3
3	?	BNP Paribas – Vivek Tawadey, Cyril Benayoun	23.1%	441	2=	3	1	16=	3	8
4	?	JP Morgan – Emmanuel Weyd, Derek Ferguson	21.4%	438	5	7	5	2	6	6
5	?	Deutsche Bank – Nesche Yazgan	21.5%	424	1	8	8	4	4	4=
6	?	Merrill Lynch – Simon Atkinson	18.6%	405	7	6	6	6	5	10
7	?	Goldman Sachs – Paul Griffith & Team	20.4%	391	6	5	4	9	7	7
8	?	CSFB – Said Saffari, Kevin Morley	22.1%	359	10	4	7	7	10	2
9	?	Lehman Bros – Mark Wade	16.2%	349	9	9	9	5	9	4=
10	?	DrKW – Christophe Boulanger	17.3%	329	8	10	10	8	8	9
11	?	SSMB – Elena Ciampichetti, Eleanor Price	13.0%	250	11	11	11	14	12	11
12	?	Barclays Capital – Juan Carrion	12.7%	247	12	14	13	13	11	12
13	?	Bear Stearns – Victoria Whitehead	11.5%	203	13	16	15	15	14	15
14	?	ABN Amro – Bob Janjuah & Team	9.2%	191	14	18	14	16=	17	14
15	?	Commerzbank – Michie Yana	8.4%	167	16	17	18	11	13	17
16	?	Soc Gen – Philippe Landroit	8.0%	162	15	20=	16	19	18	13
17	?	ING – Shaun Griffiths	8.0%	158	17	19	17	12	16	18
18	?	Bank of America – Peter Din	6.8%	152	19	15	12	10	20	21
19	?	HSBC – Simon Cowie	7.7%	151	18	13	19	15	15	16
20	?	RBS – Chris Saysell	4.4%	83	21	12	20	20	19	19
21	?	SEB Merchant Banking – Ebba Lindahl	2.9%	70	20	20=	21	18	21	20

For a profile of the winning team, please read the profile above for ‘Best in high-grade industries’ – also won by Morgan Stanley.

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Second in high-grade autos:
Michael Gray and team
UBS Warburg

Michael Gray: “I like where we are and I like our chances.”

What do you do when you?re invited to a motor show by a company that you cover and the bus they use to take you there breaks down? Michael Gray tells this tale in a way that makes you laugh. If nothing else, it provides a talking point, and discussion is what Gray says his job is all about.

Relationships and trust are also a big part of producing credible research, along with strong views based on well-informed opinions. ?It?s great to be a theoretical, ivory tower analyst,? says Gray. ?But it makes more sense if you have ideas that can be implemented in a portfolio context.?

In that sense, Gray and his team, which in Europe comprises Angeli Mulchand, have the advantage, or some might say added pressure, of the scrutiny of the UBS trading desk. The bank?s traders manage their books according to what the credit analysts? recommendations are, so they are forced to put their money where their mouths are.

The team tries to spend as much time as possible talking to as many people as possible, including issuers. But Gray and Mulchand say they would still like more data to work with, and more time to talk. ?You have to act as a conduit, taking feedback both ways. That?s a big part of [sell-side] credit research,? says Gray, who has also spent many years on the buy-side as an analyst and portfolio manager.

A key call from last year was Fiat, which, says Gray, the team did a good job of turning from cautious, to aggressive, to cautious again, in line with the credit?s market moves. But its call on DaimlerChrysler was not so good, especially at the short end of the curve, where they thought the risks outweighed the rewards and that it would underperform. In the end, it didn?t, owing in large part to the retail support the company?s bonds had in the euro markets. ?You have to be prepared to acknowledge when you?ve been wrong,? says Gray. ?Investors value that.?

At present, Gray and Mulchand are slightly more upbeat on European autos than they were two to three months ago, though they maintain that 2002 will be a difficult year. Deterioration will continue in the coming six months but not at the pace previously feared. Six to 12 months hence, a bottom will have been established and things will start to recover, not least because of stabilization in Germany.

And looking ahead to their own future in the coming year, Gray says: ?I like where we are, and I like our chances.? So watch out Morgan Stanley.
Tessa Oakley

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Best high-grade consumer products and retail (including tobacco)
Ilona Brom, Areti Loizou and team
Morgan Stanley

Best in high-grade consumer products and retail (including tobacco)
*2002*	*2001*	?	*% HG votes*	*Score*	*Euro-12 only*	*UK-only*	*?10bn+*	*?5-10bn*	*?1-5bn*	*?0-1bn*
1	1	Morgan Stanley – Ilona Brom & Team	24.7%	456	1	1	4	1	1	1
2	?	JP Morgan – Jonathon Todd & Team	17.6%	372	2	7	1	5	4	4
3	6	Goldman Sachs – Tom Mazarakis & Team	15.4%	346	6	2	3	3	6	5
4	4	Deutsche Bank – James Maxwell	17.3%	338	3	4	8	7	3	2
5	3	Merrill Lynch – E.Johnson, P. McCullagh, O.Keenan	18.0%	336	4	3	2	4	9	5
6	13	UBS Warburg – Heidi Wettenhall & Team	16.0%	317	7=	5	7	2	5	11
7	2	BNP Paribas – Francois Lauras, Jean-Yves Coupin	17.6%	302	5	13	5	12	2	9
8	5	CSFB – Clark McPherson	17.0%	281	7=	9	12	6	12	3
9	11	DrKW – A.Muthreich, R. Fennema, B.Dockray	15.3%	269	11	6	9	9	7	6=
10	7=	SSMB – Elena Ciampichetti, Bob Buhr, Eleanor Price	14.0%	263	10	8	11	8	8	10
11	9	Lehman Bros – Pilar Gomez-Bravo	14.1%	254	9	11	6	10	11	12
12	7=	Barclays Capital – Suzanne Cassidy	10.8%	210	12	12	14	11	13	8
13	14	Bear Stearns – S. Underhill, S.Surtees, V.Whitehead	10.9%	206	13	14	18	17	10	6=
14	10	ABN Amro – Bob Janjuah & Team	8.9%	167	14	16	10	18	14	14
15	18	Soc Gen – Julian Lim, Suki Mann	6.4%	126	16	19	13	16	18	15
16	12	HSBC – Richard Morawetz, Claudia Hopstein	6.1%	119	17	15	17	15	19	13
17=	?	Commerzbank – Vincent Dolan, Michie Yana	6.1%	115	15	20	15	19	16	16
17=	17	ING – Shaun Griffiths	5.5%	115	18	17	20	13	15	17
19	15	RBS – Rob Orman	5.2%	97	20	10	16	20	17	18
20	16	Bank of America – Russell Jones	3.3%	64	19	18	19	14	20	19

Ilona Brom:
“Everyone wants something from us. Our research is being used very well.”

Ilona Brom and Areti Loizou at Morgan Stanley don?t just work together ? they say they keep each other sane. They approach a pressured job with a sense of fun, often ridiculing each other?s accents (Brom is Dutch, and Loizou is Greek). But, they are quick to stress that jokes are for times when they are not busy, which doesn?t seems to be often. ?The popularity of credit analysts is increasing in the bank,? says Brom. ?At times I get the feeling that everyone wants something from us. Our research is being used very well.?

One of last year?s key calls for the team was on UK tobacco companies Gallaher and Imperial Tobacco. Gallaher, they said, would outperform the market, and its credit quality was safe despite press reports linking it to a bid for German company Reemtsma. In contrast, they said Imperial Tobacco, which finally bought Reemtsma this year, was in danger of being downgraded to high-yield levels if it made a bid.

They also predicted, however, that Imperial Tobacco would finance a takeover deal in a way that would ensure that its investment grade was maintained, so investors should either wait to buy Imperial Tobacco bonds or hold on to what they already had. ?We were right on both [these companies],? says Brom proudly.

Another key call was the upgrade of Hilton sterling 2008 bonds in November. The bonds were at 230/210 basis points over UK government bonds, at a time when the markets were uncertain and the outlook for cyclicals was ‘dim. These bonds are now trading at 160/150bp over.

Brom and Loizou say that in the next six to 12 months companies involved in consumer staples will suffer some credit deterioration and will underperform the corporate bond market as a whole, and that the performance of some consumer credits will improve in the coming one to two months, before valuations begin to look tight. Tobacco, they say, will continue to trade in line with the market, though spreads will come under pressure in the second half of the year because of litigation involving US names.
Tessa Oakley

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Best in high-grade financial institutions
Jackie Ineke, Olivia Guillard and team
Morgan Stanley

Best in high-grade financials
*2002*	*2001*	?	*% HG votes*	*Score*	*Euro-12 only*	*UK-only*	*?10bn+*	*?5-10bn*	*?1-5bn*	*?0-1bn*
1	1	Morgan Stanley – Jackie Ineke, O.Guillard & Team	28.7%	472	1	2=	1	7	2	1=
2	3	Merrill Lynch – Marc Pinto & Team	23.1%	469	2	6	3	1	4	3
3	4	CSFB – Louise Pitt	27.1%	444	3	4	7	4	3	1=
4	2	Deutsche Bank – Simon Adamson, Liz Elton	21.5%	425	4	7	6	3	1	5
5	6	Goldman Sachs – Chuck Mounts, Raj Malhotra, Donna Halverstadt	20.1%	400	7	1	2	2	8	6=
6	?	JP Morgan – E. Marrinan, N.Myer, R.Galletto	21.5%	389	6	8	5	5	5	6=
7	5	Lehman Bros – P.Fenner-Leitao, J. Raymond, P.. Gomez-Bravo	18.6%	356	9	2=	4	6	7	12=
8	7	BNP Paribas – Ian Centis, Rafael Villarreal	19.5%	354	5	10=	10	8	6	4
9	11	SSMB – Kathrina Evans	11.9%	284	8	10=	9	13	10	9
10	10	DrKW – Gerry Rawcliffe & Team	14.4%	263	10	9	12	10=	9	6=
11	12	Bear Stearns – Olivier Szwarcberg, Tiago Parente	14.4%	227	11	14	14	12	11	12=
12	13	Barclays Capital – Larissa Knepper, Roberto Bella & Guido Versondert	10.9%	220	13	13	11	9	13	10
13	14	HSBC – Tobias Grun	8.6%	196	15	5	8	16	14	14=
14	9	ABN Amro – Richard Thomas, Julia Peach, Alasdair Prescott	9.0%	191	14	15	16	14	12	11
15	19	Soc Gen – R.Montague, P.Bergeron, P. Bodereau, F.Marion, A.Lerivrain	8.0%	163	12	17	13	15	15	14=
16	17	Bank of America – Peter Plaut, January Streeter	5.5%	121	16	16	15	10=	17	16
17	15	RBS – Corinne Cunningham	3.9%	94	17	12	17	17	16	17

Jackie Ineke: infectious enthusiasm

Morgan Stanley?s financial institutions credit research team have an infectious enthusiasm for their job. It is immediately obvious in their response to the news that they have topped the poll for the second year in a row. Jackie Ineke, head of the department, refuses to believe they?ve won: ?No. Really? Really? Ooh crikey, I can?t believe it. That?s so exciting!?

Ineke and Olivia Guillard make a good double act, with Guillard?s demure French wryness balancing Ineke?s Midlands cheek. And they can even get you interested in tier-two bank debt, such is their knowledge and enthusiasm for their jobs.

?Lower-tier-two bank debt was the best performing debt sector in 2001,? says Ineke, referring to sterling assets in the MSCI index. ?It could well be the best performing in 2002.? The team is well placed to comment on the more technical aspects of bank debt ? Ineke worked at the Bank of England before moving to investment banking. This year, they organized and ran a two-day annual conference on financial institutions in London (?really well attended? they say), and brought out a heavy reference book ? the A-Z of bank debt. Ineke says proudly ?There?s nothing like it on the market. It took around two years to do.?

One of the big challenges for 2001 was Argentina. Ineke says: ?There was some grunt credit work to be done, getting lists of exposure from Argentine banks. The more difficult stuff was technical ? working out what the effect on euro lower-tier-two debt would be, for example. We had to say things like ?although this bank is likely to be downgraded two notches, spreads on their lower-tier-two debt are still going to get tighter, because there is blind demand for bank debt right now.??

The team is particularly proud of its calls over the past year on Spanish bank SCH, whose debt has been especially volatile. Morgan Stanley went negative on the credit in January 2001 when it saw the bank?s exposure to Argentina.

Ineke says: ?It was one of the most volatile stocks in tier-two debt ? it went right down then right back up, which is very unusual for the sector.? They moved to a buy in October at Euribor plus 120 basis points, prior to 20bp of tightening.

The team expects that further corporate blow-outs will test banks? exposures in 2002, which in turn will test credit research teams? ability to gauge that exposure quickly.

Guillard says: ?When we heard there were concerns about NTL, we drew up a list of banks? exposures to NTL in three hours.?

The addition of a fourth member of the team to cover insurance makes this a big team. This was one of the closest categories, with Marc Pinto?s team at Merrill Lynch very close behind, which means this sector may remain one of the best served by credit research teams in Europe. Lucky investors.
Jules Evans

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Best in high-grade credit strategy
Varkki Chacko and team
Goldman Sachs

Best in high-grade credit strategy
*2002*	*2001*	?	*% HG votes*	*Score*	*Euro-12 only*	*UK-only*	*?10bn+*	*?5-10bn*	*?1-5bn*	*?0-1bn*
1	?	Goldman Sachs – Varkki Chacko, Willem Sels, Thomas Mercier	34.1%	598	1	4	1	1	1	2
2	?	Morgan Stanley – Neil McLeish, Steve Dulake & Team	30.6%	501	3	2	3=	2	5	3
3	?	Merrill Lynch – Crispin Southgate, Jon Jonsson & Team	23.3%	472	6	1	5	3	4	5
4	?	BNP Paribas – A. Capper, D.Brickman, G.Charpin	34.8%	462	4	9	3=	7=	2	8
5	?	Deutsche Bank – Peter Conroy, Tim Barker	21.1%	446	2	12	11	7=	3	1
6	?	JP Morgan – Matt King & Team	22.7%	416	5	8	6	5	6	6
7	?	UBS Warburg – Andrew Evans & Team	18.5%	408	8=	7	2	6	7	12
8	?	CSFB – Evan Kalimtgis & Team	24.0%	388	7	5	7	10	8	4
9	?	Lehman Bros – David Munves & Team	16.4%	339	10	11	8	4	11	11
10	?	Barclays Capital – Gary Jenkins, Jim Reid & Alok Basu	17.9%	321	12	6	10	11	9	10
11	?	SSMB – R. Fumagalli, E. Varloot, M.Tauren	14.8%	311	11	10	9	16=	10	9
12	?	DrKW – Alison Miller & Team	14.8%	273	8=	14	12	14	14	7
13	?	Bear Stearns – S.Ballard, G.Neilson, P.Crate	13.5%	244	13	17=	19	9	15	14
14	?	ABN Amro – G.McDevitt, B.Janjuah, A.Van Den Bok	10.5%	225	15	15	18	12	13	15
15	?	Soc Gen – Simon Lawless, Suki Mann	8.7%	202	14	19	14	20	12	18=
16	?	RBS – Andrew Burton, Paul Stanworth	8.2%	184	19	3	13	15	17	16
17	?	Commerzbank – Gretchen Rodkey	8.7%	177	16	17=	16=	21	16	17
18	?	ING – Jeroen Van Den Broek	7.4%	161	18	21	15	16=	18	18=
19	?	HSBC – Andre de Silva	7.3%	152	17	16	20	18	19	13
20	?	Bank of America – Peter Plaut	6.4%	136	20	13	16=	13	20	20
21	?	SEB Merchant Banking – P.Ekegardh, W.Hogstrom	2.8%	66	21	20	21	19	21	21

Varkki Chacko: clear winner who puts himself in the place of his clients

Scooping a double prize this year is Varkki Chacko?s credit strategy team, winning both the high-grade and high-yield awards. In a year when analysts? credibility has been a source of controversy, Chacko and his colleague Willem Sels understandably emphasize their team?s reputation as its biggest asset.

?I think our clients appreciate an independent research view,? says Chacko. ?Clients like a product which is concise, timely and regular, which they can depend on and which has a proven track record toward commercial applicability.?

But the team is not afraid to take risks. For example, in January last year, shortly before telecoms started to experience turbulence, the team put out a controversial buy call on the high-grade telecom sector. Chacko reminisces: ?The telecom call was pretty risky when we made it back in January 2001. In March, we looked like we could have egg on our faces. By April, the call started to look a lot better.?

That is one way Goldman may differ from its rivals ? it is prepared to stand by its calls for longer. That is part of the strategy of ?putting ourselves in the shoes of our clients?, as Chacko puts it ? thinking like a portfolio manager. It is a strategy helped by constant direct contact with clients.

The Goldman team was expecting ratings to rise this year, after the mass of downgrades last year. Enron has changed all that. It is not so much the increased accounting disclosure that will bring changes ? Sels points out that balance sheet risk and leveraged risk are concentrated in a few companies, leaving large parts of the market unaffected.

The greater change may be in the way groups relate to each other, where there could be any hint of conflict of interests or of favours done at the expense of the market. This is particularly true, thinks Chacko, of the relationship between rating agencies and companies. He says: ?Agencies have become a lot more reluctant to upgrade as a result of Enron. The rating agencies are going to cut companies a lot less slack, because they don?t want to be left hanging if a company suddenly declares bankruptcy as Enron did. Enron was rated BBB a few weeks before it declared bankruptcy. Investors and others will question how a BBB company could go bankrupt so suddenly. Rating agencies are going to be far more demanding going forward, in our opinion, because the last thing they want ? or for that matter, any financial markets intermediary wants ? is to be asked to present to a Senate committee to justify their actions.?
Jules Evans

Best in ABS
Charles Schorin, Bob Paterson and team
Morgan Stanley

Best in asset-backed
*2002*	*2001*	?	*% HG votes*	*Score*	*Euro-12 only*	*UK-only*	*?10bn+*	*?5-10bn*	*?1-5bn*	*?0-1bn*
1	2	Morgan Stanley – C. Schorin, R. Paterson & Team	27.1%	182	5	2	1	1	1	4
2	4	Deutsche Bank – G. Rajendra, M.Herrmann & Team	24.7%	171	1	3	9=	6=	6=	1
3	1	Merrill Lynch – Alex Batchvarov & Team	29.0%	169	4	4	2=	3=	5	2
4	3	CSFB – Eve Flotron & Team	22.7%	136	3	5	5=	7	10	3
5	?	BNP Paribas – Ingrid Blauer & Team	17.3%	124	2	14	5=	8=	3=	6
6	7	Goldman Sachs – Alex Reyfman, Alan Brazil	15.7%	116	8	6	7=	3=	2	10
7	10	SSMB – Shaker Sundaram	12.9%	109	9=	5	11	2	3=	9
8	?	JP Morgan – Chris Flanagan, Edward Reardon	13.3%	104	7	8	10	5	8	8
9=	6	Lehman Bros – Sunita Ganapati & Lorenzo Isla	14.5%	100	11	10	2=	6=	6=	13
9=	5	DrKW – B.Specht, S. Kauntze & Team	17.6%	100	6	11	2=	11=	11	7
11	8=	Barclays Capital – Will Lloyd & Team	11.8%	95	12	7	8	10=	14	5
12	11	RBS – Andrew Burton, Ron Thompson	12.2%	81	14	4	7=	8=	9	14
13	?	Commerzbank – Iain Barbour	11.0%	70	9=	13	7=	10=	13	11
14	?	Bear Stearns – Anant Patel & FAST Team	8.6%	64	13	12	9=	11=	12	12

Charles Schorin: ABS is not a huge fraud waiting to happen.

Charles Schorin (Chip to his friends), Morgan Stanley?s veteran securitization analyst, wants to clear one thing up once and for all: the asset-backed securities market is not a huge fraud waiting to happen. Since Schorin became the bank?s head of ABS research in the US seven years ago, never have special purpose vehicles received such a bad press as they have after Enron started to collapse last October.

Schorin is calling for common sense. ?Investors understand SPVs well, but politicians and news media don?t,? he says. ?The problem is not SPVs per se. It is like an auto vehicle ? you can use it properly or recklessly. Whether what Enron did was legal or illegal, it was certainly reckless.? And that is what Schorin and his 15-strong global ABS research team said to clients in a recent report.

Bob Paterson, on the research team in London, says: ?I haven?t had a single call from an investor in the ABS sector who is concerned about SPVs.? So that?s settled. In fact, the report on SPVs wasn?t even designed for ABS investors but for their bosses, who may have needed some reassurance as the Enron blame settled on off-balance-sheet finance.

The fact is, the ABS market is still a good bet. Straight credit downgrades have outnumbered ABS downgrades by 10:1 over the past year, which is helping to draw new investors into ABS, especially in Europe ? a market that is far less well established than in the US.

This rush of new investors means that Morgan Stanley?s job is twofold: to educate beginners in how the asset class works and to comment on it for specialist investors. The firm says that last year it became the first dealer to focus on European ABS in a research roadshow.

Key calls for the European team include pointing out significant risks on junior notes from UK student loans-based debt in February 2001, a full year before Moody?s downgraded it. Fitch also followed Morgan Stanley in downgrading debt from Roadchef, the UK motorway services provider. In the US, concerns are mounting about Conseco, the manufactured housing producer that accounts for nearly 60% of ABS issuance in that sector. If it fails, and it might, that would clearly be a blow.

There is still plenty to smile about. Global growth in issuance shows no signs of slowing after a record-breaking year. And Morgan Stanley has been consistently positive on a range of off-the-run assets. Despite the recession, the bank is confident that consumer assets will continue to perform.

Even information sharing is improving. This has long been a problem in ABS as lead managers on issues and issuers themselves have been reluctant to release data about their revenue streams and collateral to non-lead-manager banks. Morgan Stanley claims to be leading the change here. In July 2001 it became the first firm to openly publish its collateral data on deals it has underwritten. Says Schorin: ?By providing this information as an underwriter we are proactive in pre-empting concerns.?

As a non-underwriter, though, Morgan Stanley practically had to bang on the door of Roadchef to obtain access to management and to get detailed explanations of how the company works. Issuers are slowly beginning to understand that this has to change. Schorin says: ?It makes it difficult to trade bonds. Investors can get the information now but the non-underwriting banks can?t.?

Morgan Stanley has done well to wn in this poll this year after coming a close second in 2001. Research teams are becoming stronger and more competitive in ABS all the time. That said, some of those teams are clearly better than others. The European house that regularly sends out ABS briefings saying ?no news today? could do well to learn from Morgan Stanley and from the other firms that have ranked in the tightly bunched top three.
Katie Astbury

Best indices provider
Behzad Mansouri, J Nehorai, M Korde
Merrill Lynch

Best indices provider
*2002*	*2001*	?	*% HG votes*	*Score*	*Euro-12 only*	*UK-only*	*?10bn+*	*?5-10bn*	*?1-5bn*	*?0-1bn*
1	1	Merrill Lynch – B.Mansouri, J.Nehorai, M.Korde	29.4%	157	1	1	1=	4	1	1
2	?	JP Morgan – Peter Rappoport, Alan Cubbon, Lee McGinty	22.0%	124	3	2=	9	4	4	2
3	2	Lehman Bros – Neil Wardley, Ravin Onakan & Team	21.2%	109	4	2=	7=	2	3	6
4	4	SSMB – Richard Pagan & Team	14.1%	108	7	2=	5	7=	6=	3
5	7	Deutsche Bank – Fergus Lynch & Team	13.3%	105	6	5=	4	5	6=	4
6=	3	MSCI – Susan Ladd & Team	14.9%	100	2	8	10	3	2	8
6=	6	Goldman Sachs – V.Chacko, W. Sels, T. Mercier	15.3%	100	5	6	1=	1	8	9
8	8	UBS Warburg – John O’Mahony	11.8%	90	8	7	6	7=	5	5
9	5	CSFB – Baldwin Smith, Has Tank	11.4%	64	9	9	7=	11	9	7
10	9	Dresdner Kleinwort Wasserstein – Gunnar Stangl & Team	5.9%	34	11	12	3	10	11	12
11	10	Barclays Capital – Will Lloyd & Team	5.9%	33	12	10	11	9	10	11
12	12	Bear Stearns – Anant Patel & FAST Team	4.7%	29	10	11	12	6	12	10

Nehorai and Korde:
proud of their transparency

Once a client picks one bank to provide it with indices it usually sticks with it unless that provider does something disastrously wrong. That?s why Merrill Lynch has won the award for best indices provider for the past three years and why it shows every sign of continuing to win it: it set up more or less the first European credit index, and, its clients say, it?s still the best.

Its victory was as convincing this year as it had been in previous years. Behzad Mansouri, Merrill?s genial vice-president of European credit indices, says: ?The biggest kudos we get is our transparency. We had 100% transparent indices before anyone else. We supply bond prices daily, either from our traders or from vendors such as Isma, which we then check. We supply the prices, as well as spreads, excess returns and other information, both on Bloomberg and on the net.? The indices are also published in the Wall Street Journal, Financial Times, and in other press sources worldwide.

Mansouri adds: ?We have the broadest index family on the street.? Merrill has six high-grade indices, including ones for Australia and Canada, and four high-yield indices, including the well-known Merrill Lynch high-yield master index.

Merrill is also good at accommodating clients and customizing indices for them. Mansouri says that in the past year the bank has picked up quite a few clients from other banks, which have run skeleton indices teams and are unable or unwilling to accommodate a client?s requests for tailor-made indices. Merrill is able to make bespoke indices.

?For example?, says Mansouri, ?a client comes to us asking for a fixed-weight index. He?s a fund manager whose mandate says he can invest 30% in AA, 40% in A and 30% in BBB, and he wants an index to measure against in that weighting. We can build that for him.?
Jules Evans

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