Kian Abouhossein: Stuck with UBS
Long-suffering shareholders of UBS can take comfort that JPMorgan’s bank-stock analyst Kian Abouhossein feels their pain. Abouhossein, who is consistently at or near the top of industry rankings of bank analysts, has been an owner of UBS shares while he has touted UBS as his number-one bank-stock pick in recent years and produced price forecasts well above the prevailing market value.
This is not a cynical exercise in pumping a stock by an analyst with skin in the game, however. Instead Abouhossein has held on to stock he picked up while he was employed by UBS until 2000. His current employer, JPMorgan, like other banks, has detailed compliance rules for its analysts. They are not allowed to acquire stock in companies that they cover, or indeed in their specialist sector. If an analyst has an existing holding it can be maintained, but there are rules on when a sale can be executed. Disposal is only allowed when the analyst has a sell order on the stock and during blackout periods when the bank is not putting out coverage of the company.
If Abouhossein wanted to unload his UBS stock, he had opportunities through the years. He had an underweight or sell rating on UBS for much of 2006 and 2007, while the firm was pursuing its disastrous experiment with its in-house fixed-income hedge fund Dillon Read Capital Management, one of many trading mishaps.
Abouhossein then switched to an overweight recommendation in November 2007 with what was in retrospect poor timing. UBS stock was at SFr49 ($53) at the time, and Abouhossein predicted it would rise to SFr70. Instead the price slumped to SFr18 by October 2008 as bank shares collapsed across the world in the credit crisis.
Abouhossein kept his overweight rating for UBS in place, but did at least temper his price target by cutting it back to SFr28. Four years later that level has still not been seen – the price fell below SFr10 after the Kweku Adoboli fraud was unveiled last September – but investors in UBS stock who are following JPMorgan’s predictions and working on an exceptionally long return horizon must be thrilled by some recent price twists.
After the voluntary downsizing of its investment bank announced on October 30, its stock blasted all the way through the target that Abouhossein had in place of SFr13. The analyst was moved to increase his December 2013 target price to SFr16 and by the end of November UBS stock looked poised to drive though this new forecast a full year ahead of schedule. Happy days for bank shareholders of all types might finally be around the corner.
Abouhossein was a vocal but measured agitator for change at UBS, producing highly detailed reports that broke down the benefits the firm could gain from cutting costs and risk-weighted assets, while extolling the virtues of its wealth management arm and relatively high capital base.
Occasionally bank analysts risk a slightly more muscular approach, which might have been a factor in the recent firing of Citi chief executive Vikram Pandit. Mike Mayo, a veteran bank analyst who works for CLSA, sees himself as the guy who tells it how it is among analysts, which is not saying much given their generally deferential approach to bank CEOs and CFOs. Mayo, who last year published a book about his exploits as an analyst called ‘Exile on Wall Street’, pursued a long-running feud with Pandit. At times the bickering was simply petty – as when Mayo complained publicly that Pandit would not grant him an in-person meeting, which led to an awkwardly orchestrated audience.
But the steady drip of criticism by Mayo of Pandit’s execution abilities is likely to have helped Citigroup chairman Michael O’Neill to gather board support as he planned his ousting of the CEO and the installation of Michael Corbat as his replacement. In the weeks since Pandit’s surprise firing and the simultaneous removal of his deputy, John Havens, there has been growing suspicion that O’Neill simply thought that it was time someone named Mike ran Citigroup, and that Corbat might not be the Mike calling the shots at the firm.
If that was the case, then O’Neill received some covering fire from his fellow Mike at CLSA. Mayo hailed the firing of Pandit as "a milestone for corporate America", and there is every chance that ‘Vikram Pandit: my part in his downfall’ will feature as a chapter in any future edition of Mayo’s book about his adventures on Wall Street.