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Politics : Dutch Central Bank Sale Announcement Imminent? -- Ignore unavailable to you. Want to Upgrade?

To: Bill Murphy who wrote (5315)	4/16/1999 8:43:00 AM
From: Rarebird	Read Replies (1) \| Respond to of 81109

Why So Many Analysts Are Bullish? As If We Didn't Know: Are AnalystsToo Bullish? SEC Chair Says Too Many Stocks Are ‘Buys' B O C A R A T O N, Fla., April 13 — America's chief stock-market regulator today said Wall Street analysts were issuing far too many bullish stock reports. U.S. Securities and Exchange Commission chairman Arthur Levitt, saying he was issuing “an early warning signal,” said such rosy stock analyses — in an age of finance-industry mergers — appear to be shaped by the lucrative ties analysts' firms have with the corporations they follow. Levitt, in comments to a trade group here, put analysts, the financial conglomerates that employ them and the corporate clients which expect glowing reports on their stocks on notice that he would be taking up such potential conflicts of interest with the industry organizations that oversee Wall Street. Conflicts of Interest Levitt, a Wall Street veteran who has headed the SEC for six years, said he now had no specific governmental proposals to cure the potential conflicts of interests between analysts and the individual and institutional investors who have lifted U.S. equities values to lofty heights never before seen. “We all know this industry is filled with possible conflicts of interest,” Levitt said at a meeting in Boca Raton, Florida, of the Securities Industry Association. “I am going to discuss this with the various self-regulating agencies. This is kind of an early warning signal.” Levitt said a study had shown that equity analysts — a frequent source of expert commentary in television, newspaper and news agency coverage of business — had shown that sell recommendations accounted for just 1.4 percent of all analysts recommendations, while buys added up to 68 percent. “Certainly, the growth in the market has something to do with this lopsidedness,” Levitt said. “But I can't help but wonder what else is driving the number of buys to exceed sells by eight to one, when in the early 1980s that ratio was roughly one to one. Conflict Confirmed by Studies “Part of the explanation could be what more and more studies are showing: a direct correlation between the content of an analyst's recommendation and the amount of business his firm does with the issuer.” Global finance has undergone a wave of mergers through the 1990s, creating giants with different divisions soliciting corporations for mergers and acquisitions business as well as loans and other finance functions even as their equity analysts track and report on the same companies as potential investments for other clients and the media. “Today, analysts are under increased pressures to look for and attract business and to help the firm keep the business it has,” Levitt said, adding that analysts are frequently expected to help corporate executives to promote sales of securities. “And very often, the trading desk and investment bankers help determine (analysts') compensation,” Levitt said. No Orders to Be Given Levitt, who praised Wall Street for dropping some dubious sales practices by brokers, said he had no intention of instructing investment firms on how to compensate analysts, brokers and other staff but underscored the potential for abuse was great and that individual investors were largely ignorant about the possible conflicts of interest among analysts. “I worry that investors are being influenced too much by analysts whose evaluations read like they graduated from the Lake Wobegon School of Securities Analysis — that's the one that boasts that all securities are above average,” Levitt said. “I wonder how many investors realize that the firm that is paying an analyst to talk about a particular company is the same firm that was paid to handle the issuance of that company's stock. And I wonder how many investors realize the professional and financial pressure many analysts face to dispense recommendations that are more in a company's interest rather than the public's interest.” Levitt's agency has recently cracked down on U.S. corporations for manipulating earnings reports, promoted the independence of directors for U.S. mutual funds and is seeking to ban political contributions by bond firms seeking government business. abcnews.go.com