Banks want secrecy on analyst contracts
By Josh Chaffin and Gary Silverman in New York
Published: May 7 2002 19:17 | Last Updated: May 8 2002 00:00
Investment banks are seeking confidential treatment of evidence that is being sought by regulators investigating possible conflicts of interest in Wall Street stock research.
Salomon Smith Barney, Bear Stearns, Credit Suisse First Boston and other Wall Street firms are understood to have asked Eliot Spitzer, attorney-general of New York state, not to disclose publicly their employment contracts with stock analysts, according to people close to the investigation.
However, Mr Spitzer's office is unlikely to grant the request, these people say. Many legal observers believe the contracts could serve as a "smoking gun" that would show that analysts' compensation was linked directly to their ability to drum up investment banking work.
"If you're getting paid on the investment banking work you've done, how can you say you're independent?" said Jacob Zamansky, a New York securities attorney.
Mr Zamansky has requested the employment contract of Jack Grubman, Salomon's telecommunications analyst, as part of an investor complaint he filed against the firm last month.
The New York Stock Exchange and the National Association of Securities Dealers are both planning to prohibit contracts that tie analyst payment to specific deals as part of their new rule-making.
The attorney general was on Tuesday awaiting a counter-proposal from Merrill Lynch in their settlement talks over how to reform the research department at the largest US brokerage.
Mr Spitzer wants Merrill to separate its research analysts from its investment bankers, and has delivered a set of proposals. Merrill has argued that the two must work together.
The attorney general is preparing to subpoena top Merrill executives on Thursday, when the two sides meet in court, if no deal has been struck. He may also press for criminal charges against the firm.
Merrill's handling of the case, meanwhile, has been criticised by Winthrop Smith, a former senior company official and son of a former Merrill chief executive.
Writing in Tuesday's Financial Times, Mr Smith praises Merrill's research, but says that current management could have responded to Mr Spitzer's allegations more effectively.
Mr Smith was replaced last year as head of Merrill's international brokerage operations during a management shuffle engineered by Stan O'Neal, the company's president. Mr Smith was offered a job as a vice-chairman, but declined.
Other Wall Street firms are keen to avoid the embarrassment endured by Merrill after the attorney general released on April 8 a series of internal emails that showed its internet analysts privately disparaging comapnies they were publicly touting.
Salomon declined to comment. Bear Stearns could not be reached.
CSFB said that in spring 2001 it adopted industry guidelines and revised "a handful" of old contracts that linked analyst pay to specific banking transactions. |
