Up to their old tricks

22:40, Mar 27 2012

Just when you thought it was safe to get back in the water, up pops this little survey from Reuters suggesting stockbroking firms are returning to their old ways.

Of 120,029 analyst recommendations on 17,000 companies, just 9 per cent were 'sell', the survey found. That's down from about 20 per cent a decade ago, in the wake of regulatory efforts to limit the conflicts inside investment banking firms.

"While so-called 'Chinese walls' were set up after regulators and legal cases shed light on the role analysts and bankers played in inflating the 1990s technology bubble, research teams still appear conflicted between their conviction and their bank's client list," reported Reuters.

I'd be interested to see how research in New Zealand and Australia compares, because the same pressures would probably exist in local markets. Personally, I'd see only a fraction of the reports analysts provide their clients, but in my experience 'sell' notes have been rare.

This may not be a problem for institutional investors, who often see research from several different firms and are, we hope, sophisticated enough to form their own view, but mums and dads are usually tied to the advice of a single firm.

With this in mind, it's interesting to see moves afoot to make independent research widely available.

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In Australia, the ASX is having a trial run of a scheme to provide independent research on companies with a market capitalisation under A$1 billion.

The aim of the scheme is not so much providing an independent alternative to existing research as to get coverage for companies previously ignored, but it's still a model that could show a way forward.

Here in New Zealand, the idea of funding independent analysis through some sort of  levy is being discussed, although it's early days.

If the numbers stacked up I think it would be a good development - investors could get another, non partisan source of information, and more companies would receive analyst coverage.

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The scandal involving former Tory party treasurer Peter Cruddas in Britain reminded me of an encounter with the CMC Markets millionaire in Sydney a few years ago.

It was November 2007 and I had interviewed him for a newspaper feature, which brought up the subject of his apparent goal to donate £1 billion to charity in his lifetime.

Putting his money where his mouth was, he offered a 200 euro contribution to my Movember effort that year. A few days later one of his assistants called to say he had had second thoughts about the donation. Instead of 200 euros, he would contribute 1000 euros to the charity.

The money was duly delivered.

What does that say about the bloke? Having met him, my guess is Cruddas sees obstacles the way a bulldozer sees a tree trunk. Set the goal of raising money for the Tories, he'd go out and do the business.

But would a businessman fabricate the idea wealthy donors could buy time with the prime minister? I doubt it. 

This smacks of political sleaze, through and through.

BusinessDay.co.nz