Are we smelling a new trend in analyst relations? Financial analysts who worry about repercussions if they recommend selling a stock can relax - they're not paranoid, it can really happen.
About half of the companies that recently participated in a survey indicated they would blackball analysts who issued "sell" recommendations. The study, conducted by Tempest Consultants for Reuters,
found that 47% of the companies said they would retaliate by excluding that analyst's investment bank from their financing projects. Another third said they would also complain to the analyst's research
head. One-fourth of the respondents said they would temporarily exclude the analyst from briefings because of the sell recommendation.
Eighty-seven percent of sell-side analysts predicted they would be excluded from financing. More than 70% said they would expect companies to react by cutting down on communications.
Sohal Shah, SVP of Tempest and director of its New York office, says the results demonstrate "the increasing trend [away from] independence of research, the [link] between research and investment
banking, and... the disparity between what the analyst and the companies consider" analysts' roles. He believes this does not bode well for individual investors, despite recent regulatory changes aimed at
creating a more level playing field.
(Shah, 212/697-5144)