brokerage

Merrill Lynch now grades stocks on a curve

Wed, 21 May 2008 06:59:59 -0400

Following the ground-breaking 2003 "global settlement" of tainted research charges, top banks with large retail units tinkered with their stock rating systems. Merrill Lynch became the latest to adopt a new plan that it calls an "an absolute system with a relative twist." This plan will enforce a grading system, as well as a grading curve--the net result of which, as the New York Times noted, will be an increase in the number of stocks with the lowest rating.

"Buy" recommendations, by definition, will sport a total return of at least 10 percent, and are the most attractive stocks among peers. "Neutral" ratings will be given to stocks that are expected to remain flat or increase, but be less than buys. "Underperform" stocks are expected to have a negative total return, or are the least attractive within the peer group. The transparency is nice.

The really interesting part is that stocks will be graded on a curve. In the universe of covered stocks, buys cannot exceed 70 percent, neutrals may not exceed 30 percent, and underperforms must be at least 20 percent of each coverage cluster. Twenty percent! That's significantly higher than the industry average the last time I checked. It looks as if Merrill Lynch aims to end the ratings-creep that has plagued the sell-side research industry for years, even after the settlement.

Retail investors should appreciate the changes. All in all, despite the business model woes, research that carries a brand name like Merrill Lynch still carries a lot of weight. These guys can still move markets. I'd like to see some research about the ROI to research units at big firms. - Jim

SPOTLIGHT: Morgan Stanley, Bank of America Job Cuts

Fri, 25 Jan 2008 06:59:52 -0500

Morgan Stanley says it will cut about 1,000 jobs (about 2 percent of its total), mainly from its brokerage unit. Back office and support jobs will be hit hardest. At Bank of America, the front office is taking the hit. Investment banking jobs will be pared. The count so far is 650. Morgan Stanley | Bank of America

Ned Johnson not giving up yet

Thu, 03 Jan 2008 06:59:54 -0500

The big news out of fund and brokerage behemoth Fidelity Investments always seems to center on succession issues. Lost in all that talk is the fact that Ned Johnson, at 77, doesn't seem to be slowing down. The door revolved last year pretty significantly. Rodger Lawson came back after 16 years. Ellyn McColgan quit, and later resurfaced at Morgan Stanley. Robert Reynolds quit. Through all this, many suspect that daughter Abigail is once again the lead candidate. But no one can be sure if she even wants the job, according to the AP. All this comes at a time when Fidelity, once the pre-eminent fund company, has seen its status chipped at by American Funds and Vanguard. Ned perhaps sees this as one final challenge to his legacy. It is a profound one.

For more:
- here's the AP article

John Thain gets a warmer welcome at Merrill Lynch

Mon, 17 Dec 2007 06:59:56 -0500

John Thain, the new CEO of Merrill Lynch, has so far escaped the kind of criticism that is dogging Vikram Pandit before he even starts. MarketWatch puts it this way: "Most agree that Thain, 51, was the best "get" of the bunch. His track record in turning around the NYSE ..., the relatively easy task before him at Merrill make him the most likely to achieve success." I'm not sure Thain would agree that the task will be "easy." He's got to figure out the risk management mess and re-order around the most appropriate markets. Most people expect him to deploy the balance sheet in Goldman Sachs-like fashion. But I would suggest that's much harder said and done. And he must win over the brokerage unit. But the world seems to think he is up for the job. I agree.

For more:
- here's the MarketWatch piece
- The New York Post reports bonuses in the Merrill Lynch bond division will be up to 70 pecent lower than last year. Article

Related articles:
- John Thain was the man everyone wanted
- Culture clash brewing at Merrill Lynch?

Ghost of Enron still haunts Wall Street

Mon, 03 Dec 2007 06:59:54 -0500

Even the mere hint of Enron can really dog the top banks--even today. Merrill Lynch's battle to win a correction from the Wall Street Journal was over an article that accused the brokerage of using Enron-like tactics. No bank will accept that in the paper of record. And now comes a Fortune article about Citigroup's high-stakes battle with that Enron carcass called the Enron Creditors Recovery Corp., which aims to extract money to pay off creditors. It accuses Citigroup of knowing the truth about Enron and therefore is to blame. It could extract up to $20 billion. Much of the evidence once again turns on e-mail sent by executives. Interesting.

For more:
- here's the Fortune article

Related articles:
- Merrill Lynch wins WSJ correction
- Enron "whistleblower" a fraud?

Culture clash brewing at Merrill Lynch?

Fri, 16 Nov 2007 06:59:54 -0500

Stanley O'Neal, even as he took Merrill Lynch to new heights, was never really seen as a brokerage guy. He was more of a banker-trader guy. Of course Merrill Lynch's brokerage force has a long history and still ranks near the top of the industry. In John Thain, they're getting a big-time investment banking type, who will have to work hard to win over the brokers. Truth be told, most investment bankers and traders bankers look down on stock brokers. But Thain is too smart not to woo this internal constituency. It can work. All he has to do is look at John Mack's success at Morgan Stanley.

For more:
- here's an AP article

Related articles:
- Forcing the succession issue at Morgan Stanley
- How Goldman envy felled Merrill Lynch

Read more on: Merrill Lynch l Stanley O'Neal l Morgan Stanley l John Thain

ALSO NOTED: Inside at 130/30 hedge fund; Mini-rally in corporate debt?; and much more...

Fri, 10 Aug 2007 06:59:50 -0400

Company News:
> Cold comfort: Mortgage rates ease. Article
> Bank of America launches new mortgage with insurance. Article

Industry News:
> Investors debate markets. Article
> Street applauds Icahn's plan. Article
> Inside at 130/30 hedge fund. Article
> Mini-rally in corporate debt? Article
> Junk bonds now a majority of all debt, first time in 25 years. Article

Regulatory News:
> Merrill fined for brokerage location violations. Article
> Campos steps down at SEC. Article

And Finally... Hire like a private equity firm. Article

SPOTLIGHT: TD Ameritrade

Thu, 28 Jun 2007 20:01:32 -0400

The heat is still on. Two hedge funds have stepped up their campaign to force the online brokerage to seek a merger. They have sent letters to execs demanding that Toronto Dominion be kept out of the discussion. Article

Commerce to end some family ties

Tue, 12 Jun 2007 20:01:37 -0400

Commerce Bancorp has long been considered a pioneer in the retail banking sector. Its user-friendly branch designs and cheery customer service policies made it, along with Washington Mutual, a bank to be emulated. But even as it scored accolades, it also took a lot of grief over some of the policies of Vernon Hill, the controversial CEO, that seemed a bit too family-friendly. Now, the bank has decided to end some of the official ties to businesses controlled by the Hill family. New leases to family-linked partnerships will not be signed. The design company that Hill's wife ran will be brought in-house. It will seek a new real estate brokerage instead of one linked to the family. All this has been the subject of government probes. A settlement is expected. So all in all, it seems like the board is doing the right thing.

For more:
- check out the AP report

More specific fund offerings coming

Wed, 30 May 2007 20:01:35 -0400

We've been talking about more hedge fund management firms going public in some form. And you should fully expect this to pan out. At the same time, we may also see more management companies take specific funds public. Man Group, the publicly traded British hedge-fund company, will list a specific fund in the U.S. Man is also planning to spin-off its brokerage assets in a U.S. IPO soon. So what we're seeing is a way for more unaccredited investors to bet on funds indirectly. There will be ample opportunities to bet it seems. This might strike you as a back door investment. In a way it allows people a work-around of the who-can-invest rules, which have become more stringent. Interesting.

For more on Man:
- here's a MarketWatch article