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Technology Stocks : HWP -- Hewlett Packard -- Ignore unavailable to you. Want to Upgrade?

To: w0z who wrote (4580)	4/25/2002 9:54:32 AM
From: w0z	Respond to of 4722

HWP circus threatens Deutsche marketwatch.com DAVID CALLAWAY HWP circus threatens Deutsche Vote sale allegations denied by both sides By David Callaway, CBS.MarketWatch.com Last Update: 12:08 AM ET April 25, 2002 SAN FRANCISCO (CBS.MW) - The last time Deutsche Bank's fund management business was in such trouble its star portfolio manager, Peter Young, showed up in a British court wearing a woman's dress, wig and lipstick. This time the publicity could be far worse. The German bank's fund business, Deutsche Asset Management, is the focus of allegations by dissident Hewlett-Packard board member Walter Hewlett that HWP Chief Executive Carly Fiorina bought its vote last month to secure victory in its bid to complete HWP's merger with Compaq Computer (CPQ: news, chart, profile). Both Deutsche (DB: news, chart, profile) and HWP (HWP: news, chart, profile) deny any deal existed, and Hewlett's own lawyer has even called the allegations "circumstantial." But if true, the conflict of interest would make the analyst research scandal that is currently raging on Wall Street look like a garden party. That a global investment bank would lean on its research department to secure favorable recommendations on companies it is pitching services to is one thing. That it would lean on its fund management unit to compromise its fiduciary duties on shareholder votes because of business incentives is another thing entirely. Fortunately for Deutsche, if Hewlett's folks had any direct evidence that Fiorina bought its vote they would have used it by now. But the banking giant can't be happy that it's suddenly caught in the tar pits of the HWP-Compaq proxy battle. Every party in this debacle will emerge tainted in some way. As I've said before, the deal will go through, but it will end up largely confirming Walter Hewlett's suspicions that it was a bad idea. For Deutsche, the unwanted publicity comes just as it was hoping the collective memory of its clients had forgotten the Peter Young affair. It was only six years ago this summer that Deutsche got sucked into one of the great fund scandals of the 1990s, when portfolio star Young was caught in a series of unauthorized trades that sank three of the firm's best European funds and ultimately cost Deutsche about $600 million in fines and reparations to shareholders. The unraveling of the damage that Young had caused kept the City of London, and the entire fund industry, spellbound for weeks. Then, just as it had started to drop off the front pages of the business press, Young showed up at his court hearing dressed as a lady, ensuring him immortality in the British tabloids as one of the weirdest financiers of his day. He eventually was declared unfit to stand trial. Deutsche has moved well past that unfortunate incident, expanding its investment banking presence in the U.S. and painstakingly repairing the reputation of its fund management business worldwide. Now comes the HWP circus to threaten all that hard work. Is it reasonable to suspect that a massive company like HWP would exert its buying power over a client to obtain a favor in a separate matter? Happens every day in corporate America. Would an investment bank sell its vote on a crucial deal in exchange for a $1 million payment and fees related to a $4 billion line of credit, as Walter Hewlett alleges? Doesn't seem so far-fetched after what we've read lately. We'll probably never know for sure. But whether Deutsche did or didn't isn't going to tip the balance in this case. Barring an extraordinary piece of last minute evidence, Walter Hewlett is not going to win this week. It will, however, serve as discussion fodder for years to come as the inevitable case studies, books, even movies come out about this historic proxy battle, all with their own conspiracy theories about how Carly pulled it off. That won't be good publicity for Deutsche, but at least this time it won't involve a dress.

To: w0z who wrote (4580)	4/25/2002 9:56:06 AM
From: Elroy	Respond to of 4722

There is nothing wrong with a research department recommending a stock and the same companies' investment management group selling the stock. All that means is that the analyst's views are different from one money manager - the money manager just happens to work under the same corporate umbrella (Smith Barney, MSDW, whatever). The DO NOT work together. They are probably in different buildings and probably in different states. And their incentives are very different. The money manager only cares about outperforming his benchmark. Simple as that. The research analyst's incentives are much more complex - he cares about generating trading volumes in the stock so his brokerage house can get commissions, he cares about making a good reputation among all large institutions so he can get voted into the Institutional Investor rankings, he cares about generating corporate finance business in the stock so corporate finance can generate fees (this is where the big controversy is - nothing to do with the investment management side of the brokerage), and he cares about being correct on his call (Buy/Sell). He does NOT care whether the investment manager outperforms his index, because if the investment manager outperforms his index the research analyst gets nothing. Squat. Zero. Why would the research analyst collude with the investment management side of the business when he aint going to share in the benefit? Nuff said. Having made my point clearly (I think), I'm fairly amazed that the CFO of HWP doesn't seem to know this..... Elroy