Goldman Analysts to Disclose Holdings
Goldman Sachs Group has begun forcing its stock analysts to disclose personal holdings in companies they follow, but the brokerage giant isn’t imposing tougher rules enacted by some rivals that limit the stocks that analysts may own.
The Goldman policy, which the firm adopted this week, requires that its 300 analysts reveal in research reports if they own securities of a company they’re writing about.
Goldman’s move follows withering criticism from regulators and investors that financial conflicts of interest increasingly have compromised the stock recommendations that analysts doled out to investors in recent years.
But in implementing rules that are more lenient than those of key rivals--which themselves had been blasted as too lax--Goldman may fuel new controversy over analysts’ work.
“Little steps like that don’t seem to matter,” said Bob Bissell, president of Wells Capital Management in Los Angeles. “I don’t think people will be convinced that this removes the perception of conflicts.”
Merrill Lynch & Co. said last month that it would prohibit its analysts from buying new shares in the companies they follow. Another major brokerage, Credit Suisse First Boston, said two weeks ago that it would bar analysts from owning shares in companies they cover, forcing them to sell holdings that conflict with that edict by Sept. 30.
Under its new policy, Goldman now includes a brief disclosure at the end of analyst reports saying whether the analyst or a member of his or her household “owns a position in the securities of” the subject of the report. The disclosure does not reveal the size of the investment or when the analyst acquired it.
Goldman wants to “ensure that we maintain the quality and integrity of [our] research,” said Ed Canaday, a spokesman for the firm, in New York.
Nevertheless, allowing analysts to own any stock of companies they cover prevents them from being objective, Bissell argues.
“Very few people in the world will publicly criticize a personal holding,” Bissell said. “Ultimately, you’re going to affect your pocketbook. It’s got to weigh on a person’s judgment.”
Concern over analysts’ personal holdings is one element of a larger furor over the credibility of Wall Street that has been provoked by the crash in technology stocks since March 2000.
In lawsuits filed recently, investors have alleged that some analysts maintained “buy” recommendations on collapsing stocks simply to boost their brokerages’ chances of gaining fee-generating work from the companies being recommended.
Morgan Stanley’s star Internet analyst, Mary Meeker, faces several such suits. In July, Merrill Lynch settled for $400,000 an arbitration case brought by an individual investor who claimed the firm’s Internet analyst, Henry Blodget, misled him.
Last week, the Securities and Exchange Commission revealed that more than one-quarter of analysts it surveyed had bought shares of companies at low prices before later recommending the shares to investors when the companies went public.
The agency is investigating three analysts who sold personal shares at the same time they were touting them to the public.
Critics say that new brokerage rules governing analyst stock ownership are a worthwhile first step but aren’t enough to guarantee objective advice from the firms.
The bigger issue, they say, is that analysts are reluctant to issue negative reports that could damage their firms’ lucrative businesses underwriting stocks and dispensing merger advice.
Analysts’ compensation increasingly has been tied to such investment-banking work rather than to the accuracy of stock predictions.
“I don’t know if those conflicts ever are going to be resolved when you have analysts tied to” the profitability of brokerage investment-banking operations, said Gary Anderson, principal at Anderson & Loe, a Eugene, Ore., money management firm.
