Now, It's Goldman Analysts
That Have the E-Mail Issues
By ERIK PORTANGER
Staff Reporter of THE WALL STREET JOURNAL
LONDON -- Another batch of potentially embarrassing stock-analyst e-mails could put another big securities firm under scrutiny.
Two senior stock analysts at Goldman Sachs Group Inc. exchanged e-mails in late 2000 that indicate both were troubled by the firm's bullish stance on telecommunications stocks, but in some cases didn't lower their ratings on the stocks, in part because of concerns about possibly jeopardizing investment-banking business.
The disclosure of the Goldman e-mails follows revelations earlier this year of the contents of e-mails written by analysts at Merrill Lynch & Co., Citigroup Inc.'s Salomon Smith Barney unit and the Credit Suisse First Boston unit of Credit Suisse Group AG. In those e-mail messages, analysts privately questioned or even disparaged stocks that they publicly promoted and, in some cases, indicated they felt pressured by investment bankers to maintain positive ratings on stocks in order to help win lucrative business.
Investigators are sifting through e-mail messages and other documents from many securities firms as part of a broad inquiry into conflicts of interest on Wall Street.
In the latest development -- reported in the Sunday Times newspaper in the United Kingdom over the weekend -- James Golob, who is the London-based co-head of telecommunications research, noted in an e-mail to New York-based co-head Frank Governali Aug. 24, 2000, that telecom stocks still made up the bulk of companies on Goldman's recommended list, even though many of the stocks had been "tanking for three months."
In an e-mail response later that day, Mr. Governali agreed the situation was "ridiculous" and noted that, in some cases, "investment banking considerations have prevented me from making a change." Mr. Governali cited AT&T Corp. and WorldCom Inc. as examples of where this had occurred.
Messrs. Golob and Governali were unavailable to comment, but Lucas van Praag, a spokesman for Goldman Sachs in New York, said the e-mails were authentic. However, Mr. van Praag said the messages had been taken out of context and were misleading. "Any e-mail traffic is selective if you don't get the whole chain," he said, although he declined to provide more e-mails that would give the context, saying that would be inappropriate.
Mr. van Praag said that, despite the wording of the e-mails, they had "nothing to do with attracting or retaining investment banking business." Mr. van Praag added that while Goldman's analysts may have been overoptimistic and wrong about telecom stocks, like many other Wall Street analysts, the e-mails don't show that they did anything inappropriate.
He pointed out that WorldCom wasn't a client of Goldman either then or now. But he said he doesn't know whether Goldman solicited business from WorldCom. Regarding AT&T, Mr. van Praag said Mr. Governali has told investigators that he had been concerned about downgrading AT&T shares because he feared that investors would assume he had inside knowledge of bad news at the company and react in an overly negative way.
In his e-mail, Mr. Golob noted a rating technique that analysts in Europe were using to avoid upsetting companies by giving them a lower rating for their stock. Analysts, he explained, had begun treating "market outperform," or MO recommendations, as the same as the lower "neutral" rating. "In Europe we have found that honour is preserved if we have a stock as an MO and the companies can't complain because it is better than an MP," or market perform, he wrote.
Mr. Governali, meanwhile, attributed the high number of bullish recommendations on Ken Hoexter, his predecessor. "I never changed them, not wanting to disrupt things too much. But it is ridiculous," he said.
The analyst went on to say that he had already met with Goldman bankers and was planning to downgrade some telecom stocks to market outperform from the bank's so-called recommended list, which is the highest rating Goldman awards. Mr. van Praag said that Mr. Governali downgraded some telecom stocks "soon after" this e-mail exchange, and that the analyst met with Goldman bankers to inform them what he was planning to do, not to discuss the downgrades with them.
Until now, Goldman largely has avoided the spotlight in the conflict-of-interest investigation, in which Merrill Lynch, Salomon and First Boston so far have received more attention from investigators. However, it was disclosed earlier that prominent executives at 21 U.S. companies personally received shares in hot IPOs from Goldman, which was among the leading underwriters in the late 1990s. Among those receiving large allocations of initial public offerings of stock were two executives of major Goldman clients eBay Inc. Chief Executive Margaret Whitman and Yahoo Inc. co-founder Jerry Yang; each received shares in more than 100 IPOs managed by Goldman since 1996, and quickly resold many of the shares at a profit. Executives or directors of WorldCom, Enron Corp., eToys Inc., and Global Crossing Ltd., among others, also received IPO shares from Goldman.
Goldman has said that the IPO data, released by congressional officials, is a "distortion of the facts," adding that the firm determined IPO allocations by considering factors including "the size of the account and the kind of transactions going through the account."
Investigators for the New York state attorney general's office and the Securities and Exchange Commission are leading negotiations to reach a global settlement against Wall Street firms. People familiar with the discussions say the fines being discussed could total more than $1 billion.
Currently under discussion are fines that could be more than $500 million from Citigroup, about $200 million from First Boston and about $75 million each from several other major securities firms, including Goldman, Morgan Stanley, Lehman Brothers Holdings Inc., Deutsche Bank AG, UBS AG and Bear Stearns Cos., according to people familiar with the matter. |
