CBS Refuses to Air Commercial for Schwab

CBS won’t show a TV ad by brokerage firm Charles Schwab Corp. that draws a sleazy picture of Wall Street stock brokerages at a time the industry is fending off charges of abusive sales practices.

The commercial, which other TV networks are airing, features an executive urging brokers at an unidentified firm to tell customers that a stock is “red hot” even though the fundamentals “stink.”

After promising to reward whoever sells the most stock, the executive encourages the brokers to “put some lipstick on this pig.”

The language echoes descriptions used by Merrill Lynch & Co. analysts in e-mail discussions of stocks touted as good investments to the firm’s customers. After the e-mails were obtained by New York state Atty. Gen. Eliot Spitzer, Merrill Lynch last month paid $100 million to settle allegations it recommended troubled stocks to win lucrative investment-banking fees.

San Francisco-based Schwab (ticker symbol: SCH) said the commercial--part of an ad campaign launched May 16--wasn’t spurred by the early April revelation of the Merrill Lynch e-mails.

“It was not inspired by any particular firm,” Schwab spokesman Glen Mathison said. “It was inspired by the generally reported and documented practices of Wall Street brokerages.”

The sales practices of other prominent investment banks also are under scrutiny.

CBS, owned by Viacom Inc., rejected the commercial because it “impugns the motives of anyone who works for a big brokerage,” Silver said. “Our obligation is not to allow ads that unfairly disparage the competition.”

CBS is airing three other Schwab ads in a campaign touting the discount brokerage as a way to buy stocks without commission-driven salesman.

With the stock market’s prolonged funk discouraging its customers from buying stocks, Schwab is trying to develop products and services to encourage more trading--a goal that eventually may force the firm to grapple with its own conflict-of-interest questions, said industry analyst Mark Constant of Lehman Bros.

Nevertheless, Schwab’s attack on its Wall Street rivals is a sound strategy in light of the scandalous headlines dominating the business pages, Constant said.

“It makes sense to kick a dog when it’s down.”

Salomon Considering

Simpler Rating System

Salomon Smith Barney Inc. may simplify its stock rating system to the equivalent of “buy,” “sell” and “hold,” responding to criticism that Wall Street research is too bullish.

Chief Executive Michael Carpenter and research chief John Hoffmann told the brokerage firm’s analysts at a May 28 meeting that Salomon might adopt the system, according to three people who attended. When Morgan Stanley Dean Witter & Co. put in place a similar plan in March, its analysts immediately gave 22% of the firms their lowest rating, up from 1%.

Securities firms are overhauling their research practices in light of Spitzer’s probe and similar inquiries by the Securities and Exchange Commission.

“A driving force of all these changes is to satisfy the regulators, to show the firms are doing a better job,” said Alan Bromberg, a law professor at Southern Methodist University in Dallas.

Salomon telecom analyst Jack Grubman has been criticized for his close relationship with Global Crossing Ltd.

Bloomberg News

ICAP Is in Talks

to Buy BrokerTec

ICAP, the world’s largest inter-bank money and securities broker, is in talks to buy BrokerTec Global, the second-biggest online Treasury securities broker, people familiar with the situation said.

A sale to ICAP may help resolve a Justice Department probe into whether the 14 banks that own BrokerTec violated antitrust rules by shutting out competitors, analysts said.

The acquisition would give London-based ICAP a bigger share of trading in the $3-trillion Treasury market and ease concern about the investigation. It doesn’t preclude the government from prosecuting the electronic bond broker should it determine that it fixed prices, analysts said.

A Justice Department spokeswoman declined to comment on how a sale might affect the probe into the effects on competition of joint ventures in the online-bond and foreign-exchange markets.

Officials at ICAP and BrokerTec declined to comment.

Bloomberg News