Dow Jones Business News
More Wall Street Firms Are Comfortable Saying 'Sell' on Stocks
Monday September 9, 4:24 pm ET
By Lynn Cowan
Dow Jones Newswires
WASHINGTON -- After nearly two years of criticism, a crummy market and an overhaul of stock ratings systems, more Wall Street analysts are comfortable saying "sell."
While stock tracker Thomson First Call calculated 4.7% of all ratings were " sell" on Sept. 1, new data out from the firms Monday show a higher percentage of negative ratings, particularly at firms that have switched to a new, three- tiered ratings system.
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Monday was the deadline set by the National Association of Securities Dealers for firms to begin calculating their percentage of buys, holds and sells, and several firms also decided to launch new rating systems that trimmed their stock labels to those essential three tiers, down from four or even five tiers in some cases. The NASD is a self-regulatory organization for securities firms.
In theory, paring down the number of descriptors was supposed to make it harder for analysts to inflate their ratings by avoiding the word "sell," and it appears to have worked. Bear Stearns & Co. (BSC) said Monday it rates 37% of its stocks buy, 42% hold, and 19% sell. Citigroup Inc.'s Salomon Smith Barney unit rates 36% of its stocks buy, 38% hold, and 26% sell. Morgan Stanley , which has been providing a breakdown of its ratings distributions for months ahead of Monday's deadline, rates 32% of its stocks buy, 48% hold, and 21% sell.
Credit Suisse Group's Credit Suisse First Boston Corp. unit rates 42% of its stocks buy, 37% hold, and 19% sell. (Some firms rounded their numbers up and others had a small percentage of stocks that they were restricted from issuing ratings on at the moment, resulting in a total less than 100%.)
Credit Suisse First Boston gave perhaps the best example of what can happen to a firm's ratings when it switches to a simpler system. The U.S. unit of Zurich- based Credit Suisse Group trimmed its rating levels to three from four, and in the process, ended up reassigning 388 North American stocks to lower rating categories.
According to Thomson First Call, Wall Street had been gradually easing toward slapping more "sells" on stocks before Monday's ratings system changes. The 4.7% sell rating on Sept. 1 was up from less than 1% the same time last year. Thomson First Call plans to do an update of the percentages later this week to track the change since the new ratings systems were instituted.
Thomson First Call research analyst Joe Cooper said more sells began to pop up around November 2001, a change he attributed to the prolonged market downturn and criticism of analysts' rosy outlook toward the stocks they covered.
To be sure, not every firm is as generous with its sell recommendations. Several, including UBS AG's UBS Warburg unit, Merrill Lynch & Co. and Goldman Sachs Group Inc. (NYSE:GS - News) , have kept their sell ratings around 5%. UBS Warburg rates 51% of its stocks buy, 44% hold, and 5% sell. Merrill rates 48.7% of its stocks buy, 45% neutral, and 6.3% sell. Goldman Sachs rates 56.6% of its stocks buy, 37.6% hold, and 5.8% sell. Only Merrill has switched to a new three- tiered system; UBS Warburg is still evaluating its system, and Goldman plans to have a new one in place by the fourth quarter.
Neither Deutsche Bank AG's Deutsche Bank Securities nor Lehman Brothers Holdings Inc. (NYSE:LEH - News) was immediately able to provide their sell rating percentages.
-By Lynn Cowan, Dow Jones Newswires; 202-628-9783; Lynn.Cowan@dowjones.com
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