Merrill Lynch Seeks to Settle Probe

Merrill Lynch & Co. shares had their biggest gain in more than a year Wednesday as the firm neared a settlement of New York Atty. Gen. Eliot Spitzer’s probe of whether its stock analysts misled investors. Spitzer said he may not ask Merrill to compensate aggrieved shareholders.

Merrill (ticker symbol: MER) climbed $3.15 to $43.95 in the biggest gain since April 2001. Spitzer in an interview said compensation to investors who relied on research of the largest securities firm by capital should come from lawsuits or arbitration. Negotiations have been “productive,” said Merrill spokesman Tim Cobb.

Merrill lost as much as $11 billion in market value in the weeks after Spitzer announced his probe on April 8, releasing e-mails indicating the firm’s research was influenced by banking relationships. Investors expect any penalties Merrill may face from the attorney general’s probe will be smaller than suggested by the shares’ recent slide.

“No matter how high the settlement ends up being, it’s already been discounted in the price,” said Joe Sharma, a money manager at Systematic Financial Management. “The question now is, when is it going to be over?”

Though Spitzer said he probably won’t seek money for investors, Merrill and other firms still face class-action lawsuits and potential arbitration claims. Federal regulators, including the Securities and Exchange Commission, and other state regulators have also started investigating Merrill and other Wall Street firms.

Rivals Morgan Stanley Dean Witter & Co. (MWD), Goldman Sachs Group Inc. (GS) and Lehman Bros. Holdings Inc. (LEH) all rose in step with Merrill. They each climbed more than 6%, sending the American Stock Exchange Broker/Dealer index up 6.9%.

Bush Chooses Two

Fed Board Nominees

President Bush picked a Princeton economist and a top advisor to Alan Greenspan as his nominees for vacant positions on the Federal Reserve Board, the administration announced Wednesday.

Ben Bernanke of Princeton was nominated for the two years remaining on a Fed term that will run until Jan. 31, 2004. If confirmed by the Senate, he will complete the term of Edward Kelley Jr., who resigned last December.

Fed staffer Donald Kohn was nominated for a full 14-year term that will run until Jan. 21, 2016. His spot opened up when Laurence H. Meyer left in January after deciding not to seek another term.

With the two nominations, Bush will have picked five of the seven Fed board spots in his first 16 months in office.

Associated Press

Pitt Defends Private Meeting With KPMG

Top U.S. markets regulator Harvey L. Pitt moved to extinguish another flare-up over his former Wall Street connections Wednesday, telling Republican lawmakers he is recused from matters on accounting firm KPMG .

The SEC chairman wrote to Rep. W.J. “Billy” Tauzin in answer to the Louisiana Republican’s demand for an explanation of a private meeting Pitt held on April 26 with KPMG Chairman Eugene O’Kelly.

KPMG, one of the world’s largest accounting firms, is under SEC investigation for its auditing work at Xerox Corp. KPMG employed Pitt before he became SEC chief.

“As far as Chairman Tauzin is concerned, the case is now closed....We’re convinced nothing improper was discussed,” said Ken Johnson, spokesman for Tauzin.

In the letter, Pitt repeated that he and O’Kelly did not discuss potential SEC enforcement action against KPMG. O’Kelly, in a statement earlier this week, said the topic was raised.

Reuters

SEC Approves New Rules on Analysts

The SEC on Wednesday approved new rules proposed by Wall Street’s self-policing bodies to curb conflicts of interest among financial analysts and restore investors’ confidence after Enron Corp.’s fall.

The rules, which prohibit firms from tying their analysts’ compensation to related investment-banking business and make other changes, have been criticized by consumer advocates and some lawmakers as not going far enough.

Associated Press