The Merrill emails dug up by NY Attorney General Eliot Spitzer don't tell us anything we didn't already know, and don't involve the companies this thread focuses on. That said, they're a pretty remarkable read:
nytimes.com
tb/A@posisasposdoes.com
New York Times, May 5, 2002
WORD FOR WORD
Swimming with Stock Analysts
By NOAM COHEN
NASDAQ’S run for the roses in 1999-2000, the year and a half when the public greeted the arrival of each and every new Internet stock with wild cheers and fists full of money, was buoyed in part by well-heeled analysts who scanned the crowded stock market and recommended winners. Shunning traditional methods for assessing a company’s value, they spoke of paradigm shifts and made more TV appearances than David Brenner.
A star among them was Merrill Lynch’s Henry Blodget, who has since left the firm and is now at the center of an investigation by the New York attorney general, Eliot L. Spitzer. A series of e-mail messages subpoenaed by the attorney general’s office and filed with the State Supreme Court forms part of the case against the company, which Mr. Spitzer argues abused its position as a banker by allowing its business relationships to affect supposedly objective assessments of stocks. But the trove of messages, some of which are excerpted below, also give a firsthand view of life in the trenches in late 2000, when Internet stocks started to nose dive.
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In October 2000, the market was already turning, brokers were getting jittery, and sins that were ignored during the boom were suddenly given much more scrutiny. Here, Mr. Blodget receives a complaint from one of Merrill Lynch’s own brokers, Jeffrey A. Sexton, who relied on the company’s stock ratings.
From: Jeff Sexton
To: Blodget, Henry
Subject: Handwritten Infospace Annual Report!?!?
Would you or someone in your office please respond to the Dow Jones News Service article by Michael R. Sesit, Oct. 20, discussing a new study analyzing annual reports of new-economy companies? In that article, Infospace’s is held up as a ‘‘horror story’’ due to its ‘‘high school exam format’’ and ‘‘some pages that are handwritten.’’
. . . A handwritten annual report for a company you have a buy rating on with a price target of $100 is disconcerting to me to say the least. . . .
Jeffrey A. Sexton
Mr. Blodget then forwards the message to a member of his research team, with an added request.
From: Blodget, Henry
To: Syer, Virginia
FW: Handwritten Infospace Annual Report!?!?
I am so tired of getting these things. Can we please reset this stupid price target and rip this piece of junk off whatever list it’s on. If you have to downgrade it, downgrade it.
So embarrassing.
h
But before Mr. Blodget’s team can respond, Mr. Sexton writes back with a mea culpa.
From: Jeff Sexton
To: Blodget, Henry
Subject: Infospace Annual Report
My apologies. I have read the 1999 annual report for Infospace. While weird and difficult [to] read, it . . . [s]eems like the study cited in the article was attempting to bash Infospace and new-economy stocks. Surprise.
From: Blodget, Henry
To: Syer, Virginia
Phew. Still would love to reset the price target to $30 or something.
•
Mr. Spitzer alleges that Merrill was slow to react to downturns. The firm, Mr. Spitzer argues, was loath to lower its recommendations for stocks for fear of losing new business. In this case, another broker is trying to get a true assessment of Internet Capital Group, which trades as ICGE.
From: Watkins Jr., Jack M.
To: Blodget, Henry
Subject: ICGE
Henry,
I feel like I need some help with what I should tell my clients regarding ICGE. I have never been hit like this, and some of my clients are getting pretty upset. . . .
What do I do?
Thanks, Jack
The reply comes from Mr. Blodget and one of his deputies, Edward McCabe.
From: Blodget, Henry
To: Watkins Jr., Jack M.
Subject: Re: ICGE
Jack,
No hopeful news to relate, I’m afraid. This has been a disaster, and I’m sorry we all have been in front of it. There are no ‘‘operations’’ here to fall back on, so there really is no ‘‘floor’’ to the stock. Lots of investors are just saying the heck with what they’ve got left, so there is enormous sell pressure and no buying. We see nothing that will turn this around near-term. . . .
Hope this helps.
Henry and Ed
From: Watkins Jr., Jack M.
To: Blodget, Henry
Re: ICGE
Does this mean I should sell it all? . . .
Thanks, Jack
•
Spin control was paramount, as seen in a note from Merrill Lynch’s public relations department to Mr. Blodget.
From: Tutschek, Joanne
To: Blodget, Henry
Re: AOL-CNN
CNN called and wanted to know if we are in the AOL deal as an adviser. Head of media relations gave them a “no comment.” If you are asked on Moneyline interview about that, say something to the effect that you are not in the loop on that as you are in research not banking. Thanks.
Joanne.
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According to Mr. Spitzer’s office, Merrill Lynch’s scale for rating companies — ostensibly a 1-to-5 scale, with 1 being a strong buy recommendation and 5 meaning sell — was meaningless. The New York attorney general’s office argues that stocks being ‘‘covered’’ by the firm were never rated a 5 — or even a 4. The following message was sent by the head of Merrill Lynch’s global research division and forwarded to Mr. Blodget, whose response indicates that even the company’s analysts were confused about what the various ratings ought to mean.
From: Melnick, Andrew
To: +RSCH
Subject: What’s a 2-2
Yesterday, at Deepak’s monthly meeting we spoke of the need to effectively differentiate our research through a combination of greater spadework on the fundamentals using broader industry sources and more differentiated investment opinions. As I listen to the morning call and read the research, it is clear that many of your 2-2 opinions do not seem to be enthusiastic recommendations to accumulate that particular stock. I am sure that comes across to both sales and the investor and therefore does not help either your credibility or long-term franchise. . . .
Rgds. Andy
The message is forwarded to Mr. Blodget by a colleague, Chris Burns, and Mr. Blodget replies.
From: Blodget, Henry
To: Burns, Chris; McCabe, Edward
Subject: Re: FW: What’s a 2-2
Chris,
. . . [G]iven that we have such things as 2-1’s and 1-1’s, I also now need to understand exactly what the difference is between ‘‘enthusiastically accumulate’’ (2-2) and “enthusiastically buy” (1-1). And while I’m at it, I probably also need to understand what an “enthusiastically accumulate now and enthusiastically buy later’’ means. . . .
Thanks.
Henry
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It’s a fine line between success and failure, as revealed in this final exchange, in which an analyst in Mr. Blodget’s group forwards a negative article about 24/7, an Internet marketing company.
From: Glatt, Eve
To: Blodget, Henry
Subject: 24/7
Don’t know if you saw this. Nothing revolutionary, but it probably confirms what you and Virg have talked about for some time.
From: Blodget, Henry
To: Glatt, Eve
Subject: Re: 24/7
That it’s a pos? Yes.
From: Glatt, Eve
To: Blodget, Henry
Subject: RE: 24/7
I didn’t read it as a positive. . . .
From: Blodget, Henry
To: Glatt, Eve
Subject: Re: 24/7
pos = [expletive]
From: Glatt, Eve
To: Blodget, Henry
Subject: RE: 24/7
Exactly my point. Do you have a cheat-sheet for your abbreviations? (I think I need one.) |
