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Merrill Lynch Changes Analysts’ Pay

June 7, 2002

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NEW YORK (AP) _ Investment bank Merrill Lynch on Friday announced plans for a new rating system for stocks intended to be easier for investors to use and said its research analysts would be paid according to a new performance-based system.

The changes were required under terms of an agreement reached last month with New York’s attorney general, who accused the company’s analysts of misleading investors. The settlement requires Merrill Lynch to stop rewarding its 800 analysts for helping the firm win investment banking fees for arranging mergers and new stock offerings _ and puts pressure on other major Wall Street firms to follow suit.

Under the terms of the settlement, the company also agreed to pay a $100 million fine after revelations that Merrill Lynch analysts disparaged stocks they had publicly promoted.

``We’re taking these steps to reinforce investor confidence in the quality, independence and insights of what we believe is the finest research team in the industry,″ Robert McCann, senior vice president and head of global securities research, said in a press release.

The new stock rating system, which reduces the number of ratings to three (buy, neutral, sell) from the previous four ratings system (strong buy, buy, neutral, reduce/sell) will be implemented in September.

The new compensation system will base analysts’ pay on how accurate they are and how their recommendations benefit investors, among other factors. The firm, the nation’s largest brokerage, will use surveys and input from clients to help gauge the latter.

``Investment banking will not have input into analyst compensation,″ a company statement said.

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