The hatchet job continues; another cheap shot from the fops at FT. Ms. Harney has been the source of a string of blatantly biased articles re various 9984 ventures and subsidiaries.
INSIDE TRACK: Japan's danger man of analysis: INVESTOR RELATIONS: Robert Zielinski's confrontation with the president of E*Trade Japan has become a legend in Tokyo, says Alexandra Harney:
Financial Times, Nov 8, 2000
E*Trade Japan's first-half results announcement last month would have gone smoothly but for one person: Robert Zielinski.
Mr Zielinski, an ABN Amro analyst, does not look like a troublemaker. But when Yoshitaka Kitao, president of E*Trade Japan, blamed the 75 per cent drop in the online broker's stock price since its flotation on September 8 on "one stupid analyst", Mr Zielinski could not ignore the snub.
"I said: 'I am not stupid!'" Mr Zielinski recalled, a week after the event.
The confrontation quickly became legend in Tokyo's genteel investment banking community: the idea of an analyst talking back to a company president in public would have been unimaginable only a few years ago.
Traditionally, Japanese companies have not worried about analysts' reports. The custom of cross-shareholding that provided management with a core set of passive shareholders has made it easy for compan-ies to overlook western-style corporate governance in favour of maintaining stable employment and steady sales growth.
But a decade of recession and an increase in the number of wealthy individual investors has changed that. Whereas bank debt was once the preferred method of financing, companies, particularly in the technology and telecommunications sectors, are increasingly turning to the equity markets because of tighter lending standards at Japanese banks. Some have even instituted stock option plans based on performance.
Japan has seen a surge in initial public offerings of internet-related businesses. And as illustrated by the plunge in Amazon's stock price after a negative report by Lehman Brothers, internet companies everywhere are much more beholden to analysts' recommendations than bricks-and-mortar companies.
The delicacy of this situation was not lost on Mr Zielinski. By the time he released his report on the day of E*Trade Japan's initial public offering, internet stock prices had been wallowing for months following investor anxiety about promises of profitability that were not kept.
"Internet companies with no revenues are totally dependent on the goodwill of investors to drive up their shares, so they are highly price sensitive," he said.
In his 11-page report, Mr Zielinski argued that E*Trade Japan was overvalued because it was not in fact an online broker: unlike rival Monex, which derives 100 per cent of its sales from online transactions, at E*Trade Japan internet-related business accounted for only 15 per cent of total revenues in 1999. The remainder was handled through the call centre, he argued, making E*Trade Japan little more than a traditional broker in online clothing. In addition, a third of revenues in 1999 came from Softbank, the Tokyo-based internet investment group, which owns 58 per cent of E*Trade Japan.
Mr Zielinski, who timed his report to reach investors the day of E*Trade Japan's flotation, included several paragraphs chastising the company for poor disclosure.
That was all Japanese investors needed to hear. Within hours, ABN Amro's switchboard was flooded with calls from dozens of irate Japanese investors. E*Trade Japan's stock price rose slightly then fell nearly 24 per cent, from Y1.63m to Y1.2m, over the next two trading days.
Most analysts agreed with Mr Kitao: the ABN Amro report helped introduce doubt to investors' minds about whether E*Trade Japan was worth nearly Dollars 1,000 a share. Few analysts, though, had published a report at the time of the offering, as most Tokyo-based analysts believe it is unseemly to evaluate a stock before it starts trading unless they are involved in the underwriting.
But Mr Zielinski, who has a degree in nuclear engineering from the Massachusetts Institute of Technology, does not hold with convention.
"Truth and controversy are the best ways for an analyst to make a name for himself," he says. "This has been great for me."
During 13 years as a financial analyst, Mr Zielinski's opinions have forced him to change jobs more than once. The first incident occurred in 1990 when, as an analyst at Jardine Fleming Securities in Tokyo, he violated an unspoken law among Japanese brokers by putting a sell rating on rival Nomura Securities. The decision attracted attention, with his picture even appearing in a tabloid as the analyst who stood up to Japan's biggest broker.
The following year, Mr Zielinski predicted Japanese bank shares would go up. Instead they collapsed - and he was reassigned to Bangkok at the moment that protests for the country's pro-democracy movement were gathering steam in 1992. By 1998, facing a suit from a Malaysian bank during a stint with Jardine's in Singapore, Jardine's pulled him from bank coverage and he joined Lehman Brothers in Tokyo and later ABN Amro in Tokyo.
Compared with a Malaysian bank or a Japanese broker, E*Trade Japan was relatively easy to expose, Mr Zielinski said. "Whereas my other controversial (reports) were based on predictions of the future, with E*Trade I didn't have to predict anything about the future because it was so obvious they were trying to pull the wool over the eyes of investors."
E*Trade Japan disagrees. "I don't think he understands what we're doing," says Kayoko Watanabe of the investor relations department at Softbank Finance, which oversees E*Trade Japan's publicity. "It is unfortunate he doesn't see it the way we do."
But other analysts agree privately that E*Trade Japan's disclosure lags far behind that of Monex, which was founded by a former Goldman Sachs banker.
E*Trade has since decided to expand its investor relations activities. This week Mr Kitao began a four-stop tour in order to pitch the company to Japanese investors. "Mr Kitao is annoyed that people do not understand our business model," Ms Watanabe said. "We have not been good enough at investor relations."
Mr Zielinski, on the other hand, seems to have lost his nerve. Although he has not been directly approached by E*Trade Japan, he said, he felt threatened by some members of Mr Kitao's entourage at last month's results meeting. "I'm worried they'll attack me," he said. "It may be time to end coverage. Japan could be a dangerous place." |
