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June 22, 2010

As BP Oil Spill Reaches Crisis Mode, A Number of Wall Street Analysts Placed “Buy” Rating On the Company’s Plunging Shares

When BP oil spill in the Gulf Coast first became news, the company’s shares started to drop. According to the Huffington Post, the unfolding crisis incited a mad dash on Wall Street, with dozens of securities analysts encouraging investors to “buy, buy, buy” BP (BP.L: Quote, Profile, Research, Stock Buzz) (BP.N: Quote, Profile, Research, Stock Buzz).

Among those to jump into the fray were Credit Suisse, Citigroup, and Morgan Stanley. Thomson Reuters says that of 34 analysts that rated the BP shares as recently as May 11, 27 gave “buy” or “outperform” ratings. 7 rated the shares with a “hold.” None of the analysts gave the shares an “underperform” or “sell” rating.

As estimates of how much oil was being spilt grew and was coupled with news of BP’s unsuccessful efforts to stop the leak, BP stock kept dropping, destroying some $100 billion in shareholder wealth. Unfortunately, when Wall Street makes mistakes, it is the investors that end up losing money.

Some experts saying that with so many analysts making the wrong call, the BP crisis has exposed the problems that continue to plague the sell-side analyst community despite all the reform that has been implemented in the last 10 years. Some investment firms are afraid to be left out, which can contribute to what appears to be an existing “group think” mentality. Analysts may also be unwilling to challenge companies for fear of jeopardizing their relationship with leading executives—a classic case of conflict of interest.

Meantime, the analysts are coming to their own defense. They say that the Deepwater Horizon oil spill was unprecedented and therefore it was hard to predict its outcome and related financial ramifications. Granted, as the risks became more obvious, many on Wall Street downgraded their buy ratings to more cautious notes. Natixis and Goldman were among those that lowered their ratings from “buy” to “hold” or neutral.” There were also a small group of analysts that did accurately call the effects the oil spill would have on BP’s stock prices.

Related Web Resources:
Wall Street Said 'Buy, Buy, Buy' BP Stock As Gulf Crisis Unfolded, The Huffington Post, June 18, 2010

BP Stock Sinks Back Near Oil-Spill Low, The Street, June 22, 2010

A Timeline of the BP Oil Spill Crisis, WallStCheatSheet.com, May 6, 2010

Continue reading "As BP Oil Spill Reaches Crisis Mode, A Number of Wall Street Analysts Placed “Buy” Rating On the Company’s Plunging Shares" »

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September 20, 2007

Shame on you Moodys! Shame on you S&P! A pox on both your houses!

Founded 99 years ago, Moody's Investors Service claims it "is among the world’s most respected and widely utilized sources for credit ratings, research and risk analysis."

Standard & Poor's traces its origins to the 1860 publication of Henry Varnum Poor's History of Railroads and Canals in the United States, a precursor of modern stock reporting and analysis. S&P claims it " is the world's foremost provider of independent credit ratings, indices, risk evaluation, investment research, data, and valuations."

For a century or more these two icons of the securities industry were respected as the gold standard for credit standards. Sadly, each has recently become just another Wall Street prostitude, peddling its opinions to anyone willing to pay them. Move over defrocked analysts Jack Grubman and Mary Meeker. Apparently, "POS" and "AAA" have much the same meaning when it comes to rating agencies.

Thirty-eight years ago a young banker in Houston became an investment banker building bond portfolios for banks and other institutions. "Investment quality" securities were required for the portfolio of most of these institutions. This was literally defined as either Baa, or higher, by Moodys or BBB, or higher, by Standard and Poors, these were the "gold standards" used when working with my clients. Today, such gold is tarnished and even questionable as to its authenticity.

Millions of investors have recently been harmed by the fall in prices of mortgage backed bonds and other obligations. Some of the losses was caused by poor credit risks. Yet, many investors who had purchased the securities, and even those who had sold these to them, were misled by the rating agencys who had given overly-inflated ratings to many of the instruments.

Moreover, the market for most mortgage-backed securities have suffered in recent months, as have other debt securities. A major reason for the fall of even sound securities has been that those who previously relied on credit rating agencies Moody's and Standard and Poor's had been betrayed. Credit these credit agenies for selling their souls to the highest bidders. A pox on both your houses.

Shepherd Smith and Edwards represents investors nationwide in claims against members of the securities industry. We have represented investors in more than 1,000 securities cases, including concerning mortgage backed securities. To learn whether we might assist you with a claim contact us to arrange a free consultation with one of our attorneys.

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July 3, 2007

Wells Fargo and its Former Research Director Fined Over Undisclosed Conflict

NASD levied a fine of $250,000 against Wells Fargo Securities LLC and $40,000 against its former research director, plus other sanctions, for failing to disclose that the lead analyst on reports issued on a company had accepted a position with that company.

The research reports concerned Cadence Design Systems, which designs semi-conductors for use in the global electronics market. According to the NASD, the analyst had applied for a job with that company prior to issuance of a report in 2005, and had two job interviews prior to issuance of others, none of which was disclosed in the reports.

The NASD’s sanctioning order states that the analyst was then offered a position at Cadence to earn over $300,000, plus Cadence stock and options, which she disclosed to the Wells Fargo and its head of research. Yet, weeks later Wells Fargo published a third research report favorable to Cadence, without disclosure of the hiring.

"The actions announced today should remind brokerage firms and research analysts of the importance of full disclosure of conflicts of interest in research reports," said the NASD’s Head of Enforcement. "There is no doubt that, where a research analyst is pursuing employment or has accepted a job with a covered company, NASD rules require that information concerning such a clear conflict of interest must be disclosed in research reports."

The analyst was also charged over her alleged role but is fighting the charges. Her lawyer called the allegations a "departure from the industry's current understanding of the rules," adding that the charges "ignore the plain language of the rules, which place the burden of disclosure in a member's research report on the member itself", meaning the disclosures were Wells Fargo’s duty, not that of the analyst.

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

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