scandals

What to make of Goldman Sachs' analysts cuts

Jim Kim — Tue, 11 Nov 2008 09:42:06 -0500

Goldman Sachs surprised some people when it was revealed that William Tanona, the firm's erstwhile financial services analyst, was among the analysts who were cut. On one hand, it seems that equity research was largely spared. Only six lost their jobs, out of a total cut of 3,300 jobs. On the other hand, there may be more analyst cuts coming. Some think that Goldman Sachs was never fully sold on the value of equity research, in the wake of the tainted research scandals of five years ago. There were rumors a while back that it wanted to get rid of research all together. The company has also decided to drop coverage of Citigroup and JPMorgan Chase, reports Reuters. So what does this mean? Are Citigroup and JPMorgan Chase no longer worth covering? There may be more going on than we know.

For more:
- here's the article

Lehman Brothers regulatory woes mount

Jim Kim — Fri, 17 Oct 2008 13:52:26 -0400

Nothing gets prosecutors worked up quite like financial scandals. So far, we've seen sporadic action only--notably charges against two Bear Stearns hedge fund executives for misleading investors. A big Enron-like enforcement action has yet to be filed. But Lehman Brothers may be a good bet. Bloomberg reports that the bankrupt firm is the target of three grand jury investigations, and has received at least 12 subpoenas. It's unclear what prosecutors are thinking. Would they try to nail some executives for misleading the public? You can imagine the defense: hey, what we reported was true, but short sellers didn't believe us. They tanked out the company. You can bet that prosecutors are going over every email sent by every executive. There's also a massive amount of private suits underway, which may bubble up some interesting accusations.

For more:
- here's the Bloomberg article
- The New York Post says CEO Richard Fuld has been subpoenaed. Article

Citi's research move a good idea

Jim Kim — Wed, 13 Aug 2008 07:12:51 -0400

Citi has confirmed that it is indeed moving its stock research unit out of Smith Barney, where it was placed following the stock research scandals of yesteryear, and back into institutional clients' business. It will become part of a new research unit that will combine fixed income and economic and equities research, and lead to some cost savings. Breakingviews argues this is a good move. The Chinese Walls that the settlement with Eliot Spitzer brought forth will still be in place, and the analysts will not be reporting to banking heads. They'll report instead to chief operating officer Hamid Biglari. It will be interesting to see what kind of research emerges from this move. The bank may try to offer a blend of analysis that treats stocks, debt and other securities as a whole, along the lines of the savvy work at Creditsights. We'll see.

For more:
- here's the Breakingviews article

Banks vulnerable over auction rate securities mess

Jim Kim — Sun, 29 Jun 2008 08:33:36 -0400

We've noted often that prosecution and regulatory activities follow scandal. The New York Times highlights an area that many have identified as rife with conflicts: the auction rate securities market. MA regulators have released emails from UBS executives that make clear that bank conflicts--they serve as underwriters and auction managers--are deep. As the market creaked and institutional buyers disappeared, UBS became desperate to keep these securities off its books. They ended up foisting them on retail customers, marketing them as safe cash-equivalents. Some brokers complained about the possible damage to client relationships over something as simple as cash. One issue here is the extent to which other top banks did the same.

For more:
- here's the New York Times article

O'Neal join illustrious ranks of ousted CEOs

Wed, 31 Oct 2007 07:59:56 -0400

On Wall Street, life can change in a blink. One minute Stanley O'Neal is on top of the industry. A few quarters later, he's been dusted. But he is hardly alone. Financial News Online has put together a list of other notable CEOs who have been pushed out for one reason or another. The list includes John Gutfreund, of Salomon Bros., who ruled the bond universe only to be undone by scandals that wracked the firm. Jon Corzine also made the list. He left after some bitter losses associated with the Russian debt crisis of 1999. More recently, there was Phil Purcell; recall the pre-John Mack drama. And Peter Wuffli, of UBS. My guess is that O'Neal will land on his feet.

For more:
- here's the list

Citigroup may research under investment bank?

Mon, 15 Oct 2007 06:59:57 -0400

According to the Financial Times, Citigroup's CEO Chuck Prince is supporting a proposal to move its stock research unit back under an institutional clients division. The FT suggests that this is basically a move to bring the unit back under the investment banking umbrella. That may be hard to justify to regulators and retail clients. Recall that in the tainted research scandals--remember Jack Grubman?--Citigroup was forced to move the research unit to its Smith Barney private client business. What's the point? To develop synergies between investment banking and stock research like the old days really isn't a good idea. Unless they want the analysts to somehow support the hedge fund managers.

For more:
- here's the article

Suit hits Principal on marketing methods

Fri, 31 Aug 2007 06:59:57 -0400

Marketing practices in the vast mutual fund sales machinery were in the news a lot during the mutual fund scandals. The news value has been eclipsed by the credit crunch but this is interesting: Two women have sued Principal Financial Group, alleging that the firm used deceptive practices to get them to rollover their 401k money, the AP reports. The suit says people were contacted by Principal, which also held the 401k accounts, in a way that led them to believe they were talking to an account manager. In reality, they were talking to a sales person. The only fund that people could rollover into had extraordinarily high fees and undisclosed compensation was paid. The company says it will defend itself against the charges.

For more:
- here's the AP article
- more mutual fund news

SEC issues report on Pequot

Mon, 06 Aug 2007 06:59:54 -0400

Recall the saga of Gary Aguirre, the former SEC staff lawyer who was forced out after he complained that his bosses were getting in the way of his insider trading investigation of Pequot Capital. In particular, they quashed his attempts to interview John Mack, then CEO, who just happens to be a big GOP donor and now the CEO of Morgan Stanley. Well, the Senate Finance and Judiciary committees have weighed in with a 108-page report, which seems to vindicate (to some extent) Aguirre, who made a huge stink about the situation. While the report said there was no wrong doing, it also said the SEC bungled the investigation, in part by letting lawyers for potential witnesses have access to high level SEC officials without the investigator. Not sure what will come of this, despite Aguirre's pleas to clean house.

For more:
- here's the New York Times article

CNBC stock picking show stokes controversy

Sun, 10 Jun 2007 20:01:37 -0400

Business Week calls CNBC's stock picking contest the American Idol of market watchers. If that's so, what a juicy scandal this is: Several top contestants may have exploited opportunities that allowed them to "pick" stocks after big run-ups. Kind of like backdating options. CNBC has issued a notice noting that there have been allegations of practices "in violation of the contest rules" and that the issue is being investigated. Business Week has more juicy details about one man who ferreted out the possible wrong-doing. He basically made the game his full-time pursuit. The fact that $1 million goes to the winner makes this a big deal. Some of the gains logged by participants do seem a bit fantastic. All this reminds of the quiz show scandals of the 1950s.

For more:
- here's the article

Big asset managers struggle in Europe

Mon, 16 Apr 2007 20:01:38 -0400

The big mutual fund companies have fared very well domestically since the recent fund scandals rocked the industry. There seemed to be a flight to quality names that were unscathed, which really helped the likes of Vanguard. In Europe, however, Fidelity, Wellington Management Company, Capital Group and some other big names (some put Vanguard on that list) seem to be struggling. The biggest issue seems to be performance, which has made consultants and others wary of recommending the firms' funds. Some have sniped that while these funds criticize companies for governance practices, their own practices seem to be outdated. They are all privately owned. Boutique-y type firms have been perceived as more nimble. But some seemed poised to put the bad luck behind them. Capital Group has expanded and seems ready to make a move.

For more:
- here's the article from Financial News Online