SEC seeks new investment banking reforms
By Lina Saigol in London and Joshua Chaffin in New York
Published: April 10 2002 19:55 | Last Updated: April 11 2002 05:11
The pressure on investment banks to have a lawyer present whenever contact is made between corporate financiers and equity research analysts increased on Wednesday as the debate over the independence of analysts intensified.
The requirement for lawyers to play a much bigger role in investment banking is believed to be among a series of ideas being considered by the Securities and Exchange Commission.
Its plans emerged as Eliot Spitzer, New York attorney-general, confirmed that his office had widened its investigation into the independence of Wall Street.
On Monday, Mr Spitzer ordered Merrill Lynch, the world's biggest broker, to disclose conflicts of interest between analysts and investment bankers. Mr Spitzer accused Merrill's research analysts of privately disparaging companies while publicly telling investors to buy shares in order to secure lucrative fees.
Mr Spitzer had originally subpoenaed Merrill along with four other Wall Street investment banks, focusing on those with large numbers of retail clients. They are believed to include CSFB, Morgan Stanley and Salomon Smith Barney. He is now understood to have subpoenaed other investment banks, including Goldman Sachs, Lehman Brothers, Lazard and UBS Warburg. None of the banks would comment on whether they had been contacted.
Mr Spitzer's investigation is one of several into the independence of analysts. At issue is whether analysts were critical of companies in private while publicly advising investors to buy the shares. In February the New York Stock Exchange and National Association of Securities Dealers issued rule proposals to govern stock analysts and their compensation arrangements with the investment banking units of their firms.
The rules are subject to SEC approvals and may be updated before final agreement.
The SEC is also said to be considering a rule that bans any contact between research analysts and investment bankers working on the same deal. The move, if adopted, would further strengthen the so-called "Chinese Wall" that already exists to separate the two business units. The SEC would not comment on pending rules or possible changes.
Its proposals, likely to be rejected by the banks, attack the heart of Wall Street's biggest banks' business model. They have trumpeted the merits of the integration of their business units in order to service clients with a "one-stop-shop".
The New York attorney-general typically concentrates on small-time stock frauds, such as boiler rooms (high-pressure selling operations on low-value shares), as opposed to large investment banks, which come under the jurisdiction of the SEC.
Many bankers believe that Mr Spitzer's probe is politically motivated. Up for re-election in November, the attorney-general has been mentioned as a future mayoral candidate. "Whenever someone local does something, it's political," a former bank chief said. A US-based corporate financier said: "This is a guy looking to make a reputation."
Additional reporting by John Labate in New York. |
