Wall Street Journal
THE SATURDAY ESSAY
NOVEMBER 5, 2011
Shouting Down Wall Street’s Wall by Mike Mayo
Longtime bank analyst Mike Mayo tells the inside story of why it's so hard to yell 'sell' in a crowded room
—and lays out how Wall Street needs to change to avoid the next financial collapse.
Over the past 12 years, longtime banking analyst Mike Mayo has issued numerous calls to sell bank
stocks, a rarity in a system where nearly all stocks are rated buy or hold. His negative ratings have
frequently gotten him in trouble with banks, clients and his own bosses, who didn't want to alienate those
companies. In this excerpt from his new book, "Exile on Wall Street," Mr. Mayo gives an inside view of
the fights, the scolding and the threatening phone calls he received as a result of yelling "sell"—and offers
a proposal to fix the banking sector.
Taking a negative position doesn't win you many friends in the banking sector. I've worked as a bank analyst for
the past 20 years, where
my job is to study publicly traded financial firms and decide which ones would make
the best investments. This research goes out to institutional investors: mutual fund companies, university
endowments, public-employee retirement funds, hedge funds, and other organizations with large amounts of
money. But for about the past decade, especially the past five years or so, most big banks haven't been good
investments. In fact, they've been terrible investments, down 50%, 60%, 70% or more.
WSJ's Francesco Guerrera stops by Mean Street to preview a book that claims on Wall Street, it's every bank for
itself. Clients, it turns out, are very far down on the list of priorities.
Analysts are supposed to be a check on the financial system—people who can wade through a company's
financials and tell investors what's really going on. There are about 5,000 so-called sell-side analysts, about 5%
of whom track the financial sector, serving as watchdogs over U.S. companies with combined market value of
more than $15 trillion.
Mike Mayo told the Senate Banking Committee in 2002 that financial analysts "are on the front lines of holding
corporations accountable." However, he says, they haven't always upheld this trust with investors.
Unfortunately, some are little more than cheerleaders—afraid of rocking the boat at their firms, afraid of
alienating the companies they cover and drawing the wrath of their superiors. The proportion of sell ratings on
Wall Street remains under 5%, even today, despite the fact that any first-year MBA student can tell you that 95%
of the stocks cannot be winners.
Over the years, I have pointed out certain problems in the banking sector—things like excessive risk, outsized
compensation for bankers, more aggressive lending—and as a result been yelled at, conspicuously ignored,
threatened with legal action and mocked by banking executives, all with the intent of persuading me to soften