Wall Street is screwing you over. There is a fundamental conflict of interest going on when giant brokerages issue research reports on companies that give them investment banking business. They try to tell us it isn't so, but why should we believe it? You should be mad, and two recent incidents add fuel to the fire...
An email memo that J.P Morgan (JPM:NYSE) sent to its European analysts was uncovered by the Times of London last week. The Times gave their article a catchy title, "J.P. Morgan Reins in Analysts," and reported that the brokerage has ordered its analysts "to seek approval from corporate clients before publishing recommendations on those stocks."
The company defended the memo, saying that it is part of an open communication policy between them and their clients. The brokerage sends a draft of any new research to the client, who can request changes. According to J.P. Morgan, the analyst can either make the changes, or explain why they can't be made. Company spokespeople vigorously defended the "independence and integrity" of their equity research.
But everyone knows the bottom line here: it's business, it's money. Millions, sometimes billions of dollars. Are you really going to bite the hand that feeds you?
Earlier this week, Goldman Sachs (GS:NYSE) caught flak when the firm recalled its downgrade of Terra Lycos (TRLY:NASDAQ). Commentators from CNBC suggested that the recall was the result of a complaint from TRLY, which has used Goldman as its banker.
The downgrade was later made official, but the incident earned CNBC a lot of red-faced huffing and puffing from Goldman's PR battalion. These firms have legions of spin doctors whose sole job it is to convince the public that their "independent research" isn't in some way self-serving.
Meanwhile, the real job of Wall Street analysts these days is to get themselves in the news and on the TV as much as possible, in order to hype their clients' companies and score fifteen minutes in the limelight...
Michael Riska |
