“”Market Place; It was the summer of 2001. Here's how one analyst improperly changed his story on SBC's earnings.
By Floyd Norris
Dec. 10, 2003
In the summer of 2001, the once-lofty stock price of SBC Communications was coming down, but the company still appeared strong.
On July 25, it issued its second-quarter earnings report, boasting that ''disciplined financial management'' had driven its earnings higher despite the recession. Its stock rose 6.3 percent that day as investors took heart.
On Aug. 8, SBC filed its quarterly report with the Securities and Exchange Commission, and at least one Wall Street analyst concluded that there was less to SBC's good earnings than there had appeared to be.
Andrew Brian Hamerling, then 27, was the Banc of America Securities analyst covering the company, and he wrote a report concluding that the company ''beat the street in the recent quarter through one-time stuff,'' as an e-mail message written by one of his bosses put it at the time.
That research report was never published, however. SBC was given a copy of the report before it was issued, according to that same message, which was quoted yesterday by NASD in a disciplinary action against Mr. Hamerling.
''The company has threatened,'' the e-mail message continued, to pull out of a Banc of America investment conference scheduled for the next month and to ''pull potential corp fin business if he publishes it.'' Presumably that meant corporate finance, or underwriting, business.
Mr. Hamerling chose to issue more positive research reports to the public while telling hedge fund clients by e-mail that he thought SBC shares were likely to fall. The contrasting opinions led to the NASD action yesterday banning him from working for any brokerage firm for nine months and fining him $125,000.
That fine is probably meaningless, because it must be paid only if Mr. Hamerling goes to work for a brokerage firm. He now works for Galleon Partners, a hedge fund manager, and evidently has no plans to return to the brokerage industry.
''Under the terms of this settlement, Andrew Hamerling will not pay a penny, which, given the facts of the case, is appropriate,'' his lawyer, Jeffrey M. Kaplan, said last night.
But the case sheds light on how Wall Street and at least some companies operated during the boom.
According to NASD, one research manager at Banc of America thought Mr. Hamerling should publish his negative report despite the threats, but another did not, and investment bankers at the firm were also opposed to taking the risk of losing business. In the end, the decision was left to Mr. Hamerling, who told NASD that he feared losing access to SBC information and chose not to publish his real opinions.
Larry Solomon, an SBC spokesman, said last night that the company would not comment on whether the company had made threats to Banc of America. But he said it was ''absolutely not'' the company's policy to make threats and added that the company had not been asked about the accusations by either NASD or the Securities and Exchange Commission.
Jennifer DiClerico, a spokeswoman for Banc of America, pointed out that ''ultimately it was his decision not to publish,'' but declined to comment on whether managers had pressed him to avoid offending SBC.
When Mr. Hamerling did issue a research opinion on SBC in September, it had a buy recommendation and a $51 target price. At the same time, however, he was sending e-mail messages to hedge fund clients saying the stock should be sold short because the company was ''faking'' its earnings, was ''clearly overvalued'' and ''has nothing fundamentally sound going for it.''
It turns out that Mr. Hamerling was right in his private opinions. SBC was trading for about $43 the day he sent his report to the company, down from a high of $59 the previous October. The shares closed yesterday at $23.97.
A version of this article appears in print on Dec. 10, 2003, Section C, Page 9 of the National edition with the headline: Market Place; It was the summer of 2001. Here's how one analyst improperly changed his story on SBC's earnings.. Order Reprints | Today’s Paper | Subscribe
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