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Rules of the Stockpicking Game in Britain A One-Sided Affair

March 10, 1992

LONDON (AP) _ If Wall Street securities analysts think poorly of a stock they’re apt to say so. Their British counterparts may be just as likely to keep quiet.

A securities analyst’s job anywhere is to identify risk and opportunity for investors. But in Britain, companies sometimes bully analysts in an attempt to block their negative comments. Critics say the result is a kind of corporate censorship that ultimately can mislead buyers and sellers of stock.

Since the 1986 deregulation of Britain’s financial markets, analysts also have come under pressure from superiors at their own firms who may have a financial stake in promoting a stock, said Brian Sturgess, a former analyst.

In one extreme case, the late Robert Maxwell yanked his pension fund business away from an investment firm where an analyst, Derek Terrington, recommended investors sell stock in Maxwell Communication Corp. PLC. Terrington questioned the true strength of the Maxwell publishing businesses.

After Maxwell died and word of his financial skulduggery spread, the stock plunged.

Sturgess, who as a Barclays de Zoete Wedd analyst told investors to sell WPP PLC’s stock, accuses WPP Chairman Martin Sorrell of applying ″enormous pressure″ to suppress negative comment.

WPP is the world’s largest advertising company.

David Buck, another former BZW analyst, said a wallpaper company named Coloroll PLC ejected him from an analysts’ meeting in 1988 because he had called their corporate strategy ″whiz-kiddery.″ Coloroll has since gone bankrupt.

A number of companies refuse to provide information to certain analysts, said Ken Rumph, portfolio manager at Scottish Amicable Investment Managers in Glasgow.

″It’s an increasing trend. Maybe that’s the effect of the recession,″ Rumph said. ″The companies are that much more worried about negative news coming out and that much keener to control things.″

This prompts some institutional investors like Rumph to discount research produced by a company’s broker.

However, Michael Selby, who teaches finance and accounting at the London School of Economics, said companies generally have become much more forthcoming with analysts in the last 20 years.

Analysts tell clients when they’re having troubles with a company, and that is tantamount to a sell recommendation, he said.

″Especially since the Maxwell business, fund mangers would now be very, very unhappy about companies which seem to be selective with analysts,″ Selby said.

Sturgess, who was laid off by BZW a year ago and now works as a consultant, said the battle over information has gotten worse in Britain since deregulation created integrated financial services firms.

Investment firms are permitted to act as a company’s banker, broker, and wholesaler of its stock. At the same time, the firm’s research department decides whether to recommend the stock to investors. The inherent potential for conflicts of interest is considerable.

Deregulation also increased competition considerably, making it more difficult for firms to make profits.

″You have enormous pressure internally to write good things about the company. The chairman is under pressure because of the fees,″ Sturgess said.

Investment firms are supposed to maintain internal barriers to insulate research departments from pressure by their stockbroker colleagues.

But Sturgess said that he had to resist pressure to delay a sell recommendation on a marketing company, so that the BZW wholesaler of the company’s stock could unload his holdings.

Geoffrey Kelly, a BZW spokesman, said: ″Our in-house rules underscore the need for research to be quite detached and independent.... Why didn’t he (Sturgess) raise the matter at the time or subsequently?″

Terrington said that in 1988 when he was an analyst with UBS Phillips and Drew, Maxwell took management of a pension fund away after Terrington made a ″sell″ recommendation.

″I was told by senior management that Maxwell told them it was in direct retaliation,″ he said.

End Adv for PMs Tuesday March 10

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