Banking & Capital Markets

Analysts Own Stocks They Cover

Some bought pre-IPO shares before delivering buy recommendations.
Joseph McCaffertyAugust 1, 2001

According to an SEC study, many equity analysts own the same stocks that they follow, and many bought pre-IPO shares before they put out glowing buy recommendations on the stocks. Some of the analysts reviewed by regulators made millions selling shares at the same time they were telling investors to buy.

“It has become clear that research analysts are subject to several influences that may affect the integrity and quality of their analysis and recommendations,” SEC acting chairman Laura Unger said in an address to the House Financial Services subcommittee.

The findings of the review are fueling concerns that analysts are not objective when they issue “buy” and “sell” recommendations. The SEC inspection turned up potential conflicts of interest at nine brokerages, and found that over a quarter of analysts reviewed bought pre-IPO shares of companies they follow.

First Union Shareholders Approve Wachovia Deal

First Union Corp. shareholders voted in favor of the proposed $14.4 billion acquisition of Wachovia Corp. The vote could give the Charlotte, N.C.-based bank an advantage in the hotly contested battle for Wachovia with rival SunTrust Banks Inc. Nearly 75 percent of First Union shareholders voted in favor of the merger.

On Friday, Wachovia shareholders are expected to vote on the First Union merger, which has the blessing of Wachovia’s board, and would create the nation’s fourth-largest bank.

However, SunTrust’s hostile bid for Wachovia, now valued at $15.2 billion, could still spoil First Union’s merger attempt. SunTrust received federal antitrust clearance for its unsolicited bid, and says it will seek open negotiations if Wachovia shareholders reject the First Union bid.

Priceline Keeps its Promise

Like many faltering dot-coms, Priceline.com Inc. vowed to become profitable this year. Unlike many dot-coms Priceline kept its promise. The name-your-own-price Internet commerce company posted earnings that beat Wall Street expectations for the second quarter, and moved the New York-based company into the black for the first time.

The Internet company said it earned $11.7 million on a pro forma basis before special items, or six cents a share. Revenues for the second quarter rose to $364.8 million compared to $352.1 million for the year- earlier period.

Priceline said that the company was able to achieve profitability by its cost-cutting efforts and a renewed focus on its core travel business.

Motorola’s Mea Culpa

After citing outside factors for poor performance at the annual shareholders meeting in May, Motorola changed its tune, and accepted responsibility for its sagging stock price. At the company’s annual analyst meeting chairman and chief executive Christopher Galvin acknowledged that the company is to blame for its poor performance.

The company apologized for not protecting shareholders and said that it would rate it success on its stock price. Motorola’s stock trades at about $19, down nearly 68 percent from its high of $59 in March 2000.

Galvin also said that the company was putting greater emphasis on cash, and a stronger balance sheet. At the end of June, Motorola’s debt was $6.5 billion, down from $7.7 billion at the end of March.

Consumer Confidence Down, Consumer Spending Up

In economic news, the New York-based Conference Board said that its Consumer Confidence Index slipped 2.4 points in July to 116.5. The decline follows two consecutive increases in May and June.

Economists blamed the deteriorating job market, weak corporate earnings, and falling stock prices for the drop in the measure. The unemployment rate climbed from 3.9 percent last October to 4.5 percent in June.

Meanwhile, the commerce department reported that consumer spending, which accounts for two-thirds of all economic activity, rose 0.4 percent in June. The increase, which comes on the heels of a 0.3 percent rise in May, was larger than economists expected. Consumer spending is expected to rise in coming months based on tax-rebate checks which began mailing this month.

Analysts Own Stocks They Cover According to an SEC study, many equity analysts own the same stocks that they follow, and many bought pre-IPO shares before they put out glowing buy recommendations on the stocks. Some of the analysts reviewed by regulators made millions selling shares at the same time they were telling investors to buy.

“It has become clear that research analysts are subject to several influences that may affect the integrity and quality of their analysis and recommendations,” SEC acting chairman Laura Unger said in an address to the House Financial Services subcommittee.

The findings of the review are fueling concerns that analysts are not objective when they issue “buy” and “sell” recommendations. The SEC inspection turned up potential conflicts of interest at nine brokerages, and found that over a quarter of analysts reviewed bought pre-IPO shares of companies they follow.

First Union Shareholders Approve Wachovia Deal

First Union Corp. shareholders voted in favor of the proposed $14.4 billion acquisition of Wachovia Corp. The vote could give the Charlotte, N.C.-based bank an advantage in the hotly contested battle for Wachovia with rival SunTrust Banks Inc. Nearly 75 percent of First Union shareholders voted in favor of the merger.

On Friday, Wachovia shareholders are expected to vote on the First Union merger, which has the blessing of Wachovia’s board, and would create the nation’s fourth-largest bank.

However, SunTrust’s hostile bid for Wachovia, now valued at $15.2 billion, could still spoil First Union’s merger attempt. SunTrust received federal antitrust clearance for its unsolicited bid, and says it will seek open negotiations if Wachovia shareholders reject the First Union bid.

Priceline Keeps its Promise

Like many faltering dot-coms, Priceline.com Inc. vowed to become profitable this year. Unlike many dot-coms Priceline kept its promise. The name-your-own-price Internet commerce company posted earnings that beat Wall Street expectations for the second quarter, and moved the New York-based company into the black for the first time.

The Internet company said it earned $11.7 million on a pro forma basis before special items, or six cents a share. Revenues for the second quarter rose to $364.8 million compared to $352.1 million for the year- earlier period.

Priceline said that the company was able to achieve profitability by its cost-cutting efforts and a renewed focus on its core travel business.

Motorola’s Mea Culpa

After citing outside factors for poor performance at the annual shareholders meeting in May, Motorola changed its tune, and accepted responsibility for its sagging stock price. At the company’s annual analyst meeting chairman and chief executive Christopher Galvin acknowledged that the company is to blame for its poor performance.

The company apologized for not protecting shareholders and said that it would rate it success on its stock price. Motorola’s stock trades at about $19, down nearly 68 percent from its high of $59 in March 2000.