Weekly Update Aug. 1, 2007 Wall Street Notes

MERRILL LYNCH: The firm’s retail brokerage revenues increased 13% to $3.3 billion, and new profits were up 23.7 %. Its broker count rose to 16,200 and it claims “net positive recruiting against all our major competitors, along with its lowest turnover of top producers in years. The firm also reported a rise in fee-based business, as it and other Wall Street firms operate on a short reprieve from the SEC to either register its representatives under the Investment Advisor’s Act, reassign the accounts to those already registered or restructure those accounts.

BEAR STEARNS: The firm continues to suffer the slings and arrows of critics over its CMO hedge fund debacle. Meanwhile, head manager of those funds was previously reported to have maintained his golf scores at the climax of the funds. Or did he? It has been reported that a three-member committee at the Hollywood Country Club in Deal, N.J., is investigating his victory at a July 4 golf tournament, to determine whether he changed his scores. Apparently, allegations of such cheating by executives at the club are frequent.

“We’re FINRA – the Financial Industry Regulatory Authority”, announced the old NASD, plus the NYSE’s regulatory functions. As we reported weeks ago, it was the third try at names for the NASD. First it offended 1.4 billion Islamic persons, then embarrassed itself with an acronym that sounded like a disease. Finally, it chose FINRA, which brought criticism from those in the financial industry that it doesn’t regulate. As we predicted, the NASD was much too arrogant to make yet another change. As well, it was intent on replacing “association” with “authority,” so it would not appear to be a fox in charge of a henhouse, despite its structure being similar to a country club (see above).

SECURITIES ARBITRATION FILINGS: Only 1,650 securities arbitration cases were filed in the first half of 2007, an annualized rate of 3,400 compared to approximately 4.500 last year. During the same period, 2,752 cases were completed, also down about 30% from the same period last year. Turnaround on all cases fell to 13.5 months, but still over 16 months when hearings were required. The stated goal of the arbitration forums for years has been for such cases to be completed in an average of less than a year.

UBS: The Company’s CEO was replaced after its international hedge fund reported millions in losses. Peter Wuffli was replaced by Marcel Roehner, who was previously deputy CEO and head of global wealth management and business banking. The Swiss banking firm expressed disappointment in its U.S. Operations, which would include several units, including recently acquired Paine Webber, Piper Jaffray and McDonald Investments.

WACHOVIA SECURITIES: Federal anti-trust regulators (I envision one guy with a big rubber stamp) this week approved the acquisition of A.G. Edwards by Wachovia. The combined firm will have 15,000 brokers, second only to Merrill Lynch (see above). The securities operation will be based in the A.G Edwards headquarters in St. Louis. Wachovia’s banking base remains in Durham NC, while builds a huge new Manhattan headquarters for its New York operations. When you learn that Wachovia is moving its entire base of operations to New York, including securities, remember that you heard it here first.

WALL STREET & FEE-BASED BUSINESS: Will Wall Street lose its fee-based business? For decades Wall Street firms have sought assets under management and shied away from commission based business. Rather than “stock jockeys” they wanted “asset gatherers”. The goal was to earn a predictable 1% to 2% return on a larger asset base. A Federal Court in D.C. upset Wall Street’s applecart by deciding its brokers’ licenses did not exempt them from coverage under The Investment Advisor’s Act (IAA) when were acting as investment advisors. Wall Street sought time to adjust. They could simply license all their brokers under the IAA, some are already licensed, but they desperately seek to avoid the “fiduciary” duty of the IAA. Meanwhile, the SEC (Securities Executives’ Comrade) hurries to “tighten” the IAA. Mark my words, the final version of any bill will include an exemption for Wall Street!

Shepherd Smith and Edwards represents investors nationwide in claims against the securities industry. If you, your firm or your pension fund has sustained losses as a result of fraud, negligence or other wrongdoing and are curious whether you may be able to recover all or part of your losses contact us to arrange a free consultation with one of our attorneys.

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