Do you trust the analysts?
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04/26 16:41
Merrill CEO Komansky Apologizes for Analyst E-Mails (Update6)
By Stephen Cohen
Plainsboro, New Jersey, April 26 (Bloomberg) -- Merrill Lynch & Co. Chairman and Chief Executive Officer David Komansky apologized for e-mails sent by some of the firm's research analysts that denigrated stocks it recommended investors buy.
``The e-mails that have come to light are very distressing and disappointing to us,'' Komansky said at Merrill's annual shareholders meeting. ``They fall far short of our professional standards and some are inconsistent with our policies.''
Komansky's apology came as regulators widened probes into whether analysts gave favorable ratings in order to win or retain investment-banking clients. Merrill is a focus of an inquiry by New York Attorney General Eliot Spitzer, who released copies of the e-mails this month. The firm's market value has dropped $8.5 billion since the probe was announced April 8.
The CEO didn't specify what he was apologizing for. Merrill spokesman Tim Cobb declined to elaborate.
``We have failed to live up to the high standards that are our tradition, and I want to take this opportunity to publicly apologize,'' Komansky told about 400 shareholders at the firm's Plainsboro, New Jersey, office complex. The standing-room-only crowd included the firm's senior executives, board members and the former chairman, William Schreyer.
``We further regret that the perception of our research integrity has clearly been affected,'' said Komansky, who declined to say what policies may have to change or how much the firm might pay.
`Step Forward'
One of the Merrill e-mails called At Home Corp., an Internet- access provider that filed for bankruptcy protection in September, ``a piece of crap'' at the same time Merrill was recommending investors buy the stock.
``It's a step forward,'' said Marc Violette, a spokesman for Spitzer, said of the apology. ``One necessary aspect of resolution has always been contrition.''
Komansky said Merrill is ``redoubling'' efforts to enforce existing policies and is negotiating with Spitzer, the Securities and Exchange Commission and other regulators to resolve conflict- of-interest claims. ``Hopefully,'' more information will be available ``in the next week or so,'' Komansky said. Merrill last week agreed to disclose more information about its investment- banking relationships to users of its research.
The SEC yesterday joined the investigation and said it would focus on all securities firms, not just Merrill. SEC Chairman Harvey Pitt said the agency will begin a formal probe into whether securities firms committed fraud by issuing favorable research to attract or retain companies as investment-banking clients.
Restoring Confidence
``It's good public relations for Merrill Lynch to acknowledge what's out in the public already,'' said Robert Heim, a former Securities and Exchange Commission enforcement attorney, now with Meyers & Heim LLP, a law firm. ``It's a step to address the problem.''
Merrill's stock, which has fallen 17 percent this year, rose 88 cents to $43.38. Bonds issued by Merrill and other Wall Street firms fell on investor concern that the investigations may crimp profits.
``We will take meaningful and significant actions to restore investor confidence,'' Komansky told institutional and individual investors, who voiced their concern about the probe and questioned the CEO about research practices. He fielded about four questions on the topic from investors at the meeting.
Stanley O'Neal
Merrill's analysts have never been paid for participating in the sale of investment-banking services, Komansky said. ``We will redouble our enforcement of existing policies and take strong actions against anyone who violates them,'' he said.
The shareholders' meeting may be Komansky's last as CEO. He said in February that he may give up the post before retiring in 2004. Stanley O'Neal, 50, named president of the firm in July, probably will replace Komansky as CEO, many investors say. Komansky, 62, has headed the firm since 1996 and worked there since starting as a broker in 1968.
Merrill Lynch is a passive, minority investor in Bloomberg LP, the parent of Bloomberg News. |
