'Independent' Stock Research
Hasn't Been Must-See
By JUDITH BURNS
DOW JONES NEWSWIRES
November 26, 2005; Page B3
WASHINGTON -- Investors aren't flocking to free, independent stock research, the centerpiece of Wall Street's $1.4 billion settlement with regulators after allegations the banks' own research was tainted by conflicts of interest.
Reports by outside consultants, the first since the 2003 settlement, show that 10 Wall Street firms collectively spent nearly $74 million to provide clients with "independent" research -- reports generated from outside analysts -- through mid-2005. Yet the reports suggest the research isn't a hit.
"Usage by the expected prime beneficiaries of the settlement, individual investors, is not as high as one might have thought it would be," wrote Lehman Brothers Holdings Inc.'s consultant. Lehman's data show less than 1% of hits to its Web site are for independent research.
Merrill Lynch & Co. spent $13 million on independent research, but consultant Bridget Macaskill said it has received little feedback from investors to the Web site where it is posted. However, she said it appears the reports are used "extensively."
Credit Suisse Group's Credit Suisse First Boston spent nearly $10 million on independent research, but feedback has been "infrequent," wrote consultant Patricia Chadwick. Most of the 10,000 hits to CSFB's independent research Web site were from its brokers. Just 110 retail customers accessed the site in its first year, which Ms. Chadwick attributes to CSFB's relatively small retail client base.
Goldman Sachs Group Inc.'s Goldman Sachs spent $8 million on outside research and makes it available through three Web sites, which generated 408 "unique visitors" in July 2004, its consultant said. Usage rose to a monthly high of about 722 visitors in 2005.
Bear Stearns Cos. hasn't received enough feedback from retail customers to make any "meaningful observations" about their views of the research, which cost the company $5 million, wrote consultant Michael Downey. But he said "independents appear to be performing on par with their Street counterparts."
Lehman's consultant found independent research wasn't always timely and sometimes needed to be redesigned to be "more useful to Lehman clients." He said investors may ignore independent research unless they view it as truly competitive with the bank's own reports.
Morgan Stanley consultant Arthur Ainsberg was more upbeat. Morgan Stanley spent nearly $10 million on outside research and about 975,000 customers, brokers and other employees have visited its research Web site, which Mr. Ainsberg said shows the settlement provided "a significant research resource for clients making their investment decisions."
Wall Street firms agreed to spend $25 million to $75 million each to provide independent research free of charge for five years under the landmark research settlement. New York state's attorney general, Eliot Spitzer, predicted investors would benefit from research untainted by a Wall Street firm's investment-banking business that might bias recommendations to buy or sell a stock.
Mr. Spitzer declined to comment on the reports, a spokesman said. Securities and Exchange Commission spokesman John Nester also declined to comment, but said the SEC will continue to monitor the settlement.
At $500 an hour, independent consultants don't come cheap. UBS's consultant was paid $1.6 million for about 3,700 hours over two years and Morgan Stanley's consultant made $1.2 million in 18 months. Merrill's consultant logged almost 2,000 hours over two years and made nearly $1 million.
Even consultants have potential conflicts. Goldman Sachs consultant Henry Frantzen alerted regulators this year to a prospective relationship between his investment firm and a so-called fund-of-funds that used Goldman as its prime broker. On the advice of regulators, he recused himself "immediately" from decisions on the fund-of-funds. Merrill's consultant said her son applied for a summer internship at various banks, but wasn't allowed to apply at Merrill. |
