(FORTUNE Magazine) – Last fall, analyst Charlie Peabody, of obscure Mitchell Securities in New York, went way against the grain when he slapped a sell recommendation on both J.P. Morgan and Chase Manhattan Bank. Most analysts were positive on the banks at the time, and although Chase's stock seesawed downward, Morgan had zoomed to a new high in early December. Even so, Peabody was concerned about their exposure to Asian loans. The crisis was serious enough, Peabody figured, to inflict both banks with big trading losses, a rise in deadbeat loans, and disappointing fourth-quarter earnings. As it turns out, that's pretty much what happened to Morgan, which missed its expected earnings by a mile in the fourth quarter--earning $1.33 instead of the expected $1.57--and announced that it would allot 60% of its $1 billion in loan loss reserves to Southeast Asia. Citicorp, which reported earnings at the same time, suffered a 20% decline in earnings in its global consumer banking operations and estimated that unfavorable exchange rates alone in Asia had cut $100 million off its pretax earnings.

The story was much different at Chase, however, where earnings arrived in line with expectations and Asia-related losses were said to be insignificant. So while Morgan was busy establishing hundreds of millions of dollars in reserves against future Asian losses, Chase took no special action. And therein lies the possible problem: Chase has $10 billion in Asian exposure, which is more than any other U.S. money center bank. Yet it has admitted to fewer problem loans than any of its peers.

The reason, Chase says, is that its Asian loans are just fine. "We have stress-tested our Asian portfolios up, down, and sideways," says a very confident David Pflug, Chase's senior credit officer. "Is it too simplistic to say we expect to get paid back?" adds a company spokesman.

No, but it might be too optimistic, if Peabody's analysis is right. Peabody, whose idea of a good time is reading the footnotes of bank financial statements, argues that it's unlikely that Chase is that much smarter than its peers or that its Asian portfolio is that much safer. "Chase is in a state of denial," he says. So is Wall Street, he claims, which is attracted to several carrots being dangled by Chase. One is the hope that Chase is headed for a restructuring. Another is that it will soon announce another stock buyback. Still another is that it will soon raise its dividend. The Street expects the company to raise earnings by 17% next year.

The soft-spoken Peabody, who spent most of his career on the banking beat as a superstar analyst at such firms as Merrill, Drexel, Kidder Peabody, and UBS, isn't buying it. While he likes to think of himself as a value investor who is more likely to go long than short, "I try to understand what the risk is," he says. At Chase, that risk goes beyond Asia to an aggressive strategy of taking unusually large positions in its own underwritings of junk bonds and other highly leveraged securities in the U.S. and Latin America. As a result, Peabody believes Chase's financial foundation is flimsier than most analysts realize. "It's a concept story," he says. "And since Wall Street is more concerned with selling stocks than analyzing them, it's perfect for disappointment."

NO FUN, AND IT'S NOT A GAME. Late last year Galoob Toys won the the license to make Micro Machines tied to the next three Star Wars movies. As part of the deal, Galoob gave George Lucas' Lucasfilm warrants to buy up to 20% of Galoob at $15 per share. Galoob also agreed to pay advance royalties of $140 million, in three unequal installments, as each movie is rolled out. The first is due in spring 1999. Just a few problems: Galoob, which has reported four straight quarters of losses, is running low on cash--it had just $3 million at the end of the fourth quarter--and its stock now trades for around $8. You can't help but wonder what Lucas, who isn't known for tolerating trouble, is thinking. Lucasfilm declined comment.

INTERNET INSANITY. Last month, I warned that Internet sites that rely on advertising will be as cyclical as any other advertising-driven media (including this magazine). Enter Excite CEO George Bell, who fired off this counterpoint: "The cyclical nature of advertising presumes all media are chasing, during a recession, a shrinking number of ad dollars. Did you know that two-thirds of all marketing dollars in the U.S. are spent on direct marketing and one-third on impression-based advertising?

"In a recession, you cut impression-based advertising first, because it's principally engaged in brand building. It offers no accountability, just a lot of buzz for your product name. For example, Ford will never know how many Tauruses it sold by advertising in prime time on NBC. But if Auto-by-Tel can send 12 qualified leads to a Ford dealer and he converts one-third of them to purchases, that dealer will spend as much money as he can to keep that pipeline of qualified leads coming to him. As a result, during a recession he will ask the parent company to cut back on impression-based advertising and divert the dollars to lead-generation media with specific accountability, targeting, and measurement. Right now there's only one medium that provides all that: the Internet."

Touche, George. We'll see.

HERB GREENBERG is a columnist at the SAN FRANCISCO CHRONICLE. He can be reached by E-mail at bizinsider@aol.com