Analysts are waking up from the tech wreck with a doozy of a hangover.
From the darlings of the media and bleary-eyed day traders 18 months ago, stock analysts are facing widespread criticism, several investigations, new restrictions, lawsuits and disrespect.
And many are crying “Ouch!”
“Analysts are a laughing stock,” said Michael Davey, himself a technology analyst with global investment bank Investec Ernst & Co. “Our credibility is shot; it’s very painful.”
While most analysts declined to be interviewed, others said they welcome the initiatives being undertaken by the industry to restore their credibility.
“We looked like fools, it’s a very real thing having your name associated with failure,” Davey said.
“And a lot of this [criticism and scrutiny] we deserve,” he added. “We only saw the glory and research that wasn’t high quality but was mostly cheerleading for companies, became exposed in the market downfall.”
And unlike the heyday of just a short time ago, analysts now just want to lay low.
“We had a rise and fall, from fame to infamy,” said Jessica Mann, vice president of professional standards for Association for Investment Management & Research and a veteran equity analyst.
“Now we all want to keep a low profile and get back to the primary job of doing good research,” she added.
Merrill Lynch’s daring initiative this week bars their 600 analysts from owning stock in the companies they cover. It is the most restrictive move of its kind on Wall Street and may be joined by other firms.
However, a veteran analyst points out that most didn’t get rich by buying and selling their own securities. But it isn’t just Wall Street. Everyone, it seems, is analyst-bashing.
The Securities and Exchange Commission, the National Association of Securities Dealers, the New York attorney general’s office and Congress all want a say in how to fix analysts and conflicts of interest.
Everything is under scrutiny. Compensation, disclosure of stock ownership, who they report to and how they get information from the companies they cover are a few examples of the upheaval in the industry.
But analyst bias is not a new problem. For years, Wall Street has had a so-called Chinese Wall between research and investment banking – keeping one side from influencing the other.
And while everyone admits it was never a perfect arrangement, why is there all this fuss now?
Many analysts say the falling markets and the extremes of the last 19 months have made them the obvious targets for derision.
Some say that once the markets recover, everyone will forget analysts and move on to the main business of making money.
But many remember that during the stock slide and market devastation which saw trillions of market wealth evaporate and ended the longest bull market in history, only 1 percent of analysts had “sell” recommendations.
Technology analysts were especially late.
One firm is doing just that. Prudential Securities has completed downsizing its investment bank to focus on a quality research product.
But while independent research may seem the way to go to answer analysts bias, many industry observers think otherwise.
“It is a proven fact that institutional investors will not pay a premium for research,” said one 34-year equity analyst veteran. “That’s why many of the independent research houses have disappeared – they just couldn’t make enough money.”
So, while some independent research firms are available, expect most to tap Wall Street for its product.