Posted on: Wednesday, June 13, 2001

Firms set guides on conflicts of interest

USA Today

NEW YORK — Wall Street, trying to blunt public criticism, has issued new guidelines to curb conflicts of interest that undermine the credibility of analysts' investment advice.

All major Wall Street firms endorsed guidelines issued yesterday, two days before a congressional committee takes up the debate.

Investors and regulators have complained that the firewall that used to separate the stock research and investment banking departments has crumbled. Critics say investors can no longer trust research. They also point to the suspiciously high number of "buy" and low number of "sell" recommendations.

The guidelines are already having an impact.

Technology analysts at Credit Suisse First Boston, for example, will now report to the director of research, instead of Frank Quattrone, head of the firm's technology group.

Credit Suisse cut a program that awarded analysts bonuses of up to $1 million for their investment banking work.

Even so, the guidelines fail to placate critics. "First, they are voluntary," says Rep. John LaFalce, D-N.Y.

"Second, they focus attention on limited disclosure and leave unaddressed troubling issues like television appearances by analysts who are not required to disclose their conflicts to the public. Third, they perpetuate the practice permitting analysts to invest in companies they cover."

Among other skeptics: Arthur Levitt, retired chairman of the Securities and Exchange Commission. "I think it's fine they've done this, but my experience is 'best practices' is what you put out to defer more onerous consequences," he says.

"We are going to be urging aggressive action by Congress and the SEC," says Damon Silvers, of the AFL-CIO, which oversees $411 billion in pension funds.

Silvers advocates a ban on linking analysts' compensation and underwriting business and a ban on "analysts in investment banking marketing activities."