CSFI: Analyst Bias Worry Goes Further Than US - Concerns About Equity Analysts' Independence Are Rife On Both Sides Of The Atlantic, Andrew Hilton Discovers.

(From The Banker)

Byline: ANDREW HILTON

Is the furore over the independence of equity analysis just a US issue (Blodget, Grubman, Eliot Spitzer's obsession, the growing pressure on Citigroup's Sandy Weill, etc)? Or is it something that ought to scare the pants off the UK and Continental Europe as well? The UK Financial Services Authority's (FSA) recent consultative paper said not to worry; it pointed to the absence of a star system in the UK, the fact that there are far fewer retail investors and the assumption that UK institutions can look after themselves.

But, in one of the liveliest meetings for a long time, at least two of a CSFI panel (consisting of the Financial Times's John Plender, Capital Economic's Roger Bootle, and Nick Antill, who trains equity analysts) disagreed strongly. There is a problem and, as in the US, it comes from putting investment bankers, brokers, analysts and macro-economists into the same bed under the same roof.

Analysts' role

It is hard to give the real flavour of such dense discussion. But a few (anonymous) quotes may help:

- "The job of a macroeconomist is to justify any level of a market." What this means is that, in the 1990s, City economists working for City institutions undermined central banks by making it practically impossible for them to prick the asset bubble that they all saw coming. The result was that, when the bubble burst, the pain was much greater than it need have been.