Goldman Sachs
still has faith in online investment banks…

The independence of analysts
under the scrutiny of
American lawmakers

Despite the crash of the Internet values that came as a shock to all of us, Goldman Sachs still believes it can, sooner or later, revive the enthusiasm that small investors used to show for the hottest technologic IPO's.

Indeed, the group just announced that it was going to buy Epoch Partners, an online investment bank which mainly targets small investors.

Epoch Partners was formed by three venture-capital firms but also by online brokers such as Charles Schwab and Ameritrade. It was first established to serve small investors' interests, as the latter often failed to have access to most IPO's; as a result, financial analysts had thus established this online investment bank which only ever managed to offer 11 "technologic" IPO's to its clients from the moment it was formed...

Epoch Partners presently has 80 employees and Goldman Sachs believes small investors will soon enjoy taking chances again!

In the meantime, some ill-intentioned gossips claim that Charles Schwab and Ameritrade are rather relieved to off load the problem to Goldman...

Whatever the case may be, this token of trust in the future of the Internet proves that some financial analysts still believe that technologic values do have a future.

American lawmakers are presently examining all possible angles in order to be able, one day, to really question Wall Street analysts who manage to fill small investors' with enthusiasm small investors for companies in which these same analysts own stock or with whom they have business relations, and who because of this could give biased advice.

The "independence" of some analysts appears to be strongly questioned by some federal regulators after an inquiry was summoned by the attorney general for the state of New York.

What is questioned is the conduct of some analysts who would have kept on depicting a flawless picture of companies that were in fact collapsing.

This is why, when the Nasdaq index was down 60 percent, only 1 percent of analysts advised their clients to sell…it seems that a conflict of interests was responsible for certain recommendations made.

Whether this is true or not, some things should now be done to prevent the rise of this type of suspicion.

It is also planned to modify the guidelines concerning analysts' wages: for instance, an analyst who earns over $200.000 per year, would no longer have his pay directly linked to the investment banking transactions handled by his firms or companies covered by him.

Similarly, they plan to force analysts to officially disclose which are the companies (handled by them) in which they own stock but also to prevent them, if they do own stock, from making transactions that are adverse to their own financial views.

As far as officials of the Wall Street group are concerned, they consider that new legislation is not needed and that internal guidelines should be enough.

And even if the man in the street has his share of responsibility in the crash that took place in the technologic sector, having confused the Stock Exchange with the casino, it seems that analysts played a similar game but to their sole profit.

Source : AP