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Battle begins over interests conflict

AN American stockbroker once told me: “If people really knew what we get up to on Wall Street, we would all be in a lot of trouble”.

Now we know. And they are. Merrill Lynch is vigorously defending a court order alleging conflict of interest between its investment banking and broking arms.

The affair stems in part from the demise of the tech boom, when a New York doctor threatened to sue top Merrill analyst Henry Blodget for what he claimed was worse-than-bad advice.

The furious physician complained thousands of shares in an online company called InfoSpace were stuffed up his nose by Blodget and his “buy” recommendations.

Subsequently, InfoSpace shares swallow dived from $US250 to less than $13 and the client lost 96 per cent of his money.

Tough luck Doc, you may say. But the problem is the broker’s investment bank was simultaneously bedding down a lucrative deal with Infospace.

Merrill is being pressured by the New York attorney general to provide more disclosure about potential conflict of interest in their research reports and recommendations. Other Wall Street firms are waiting nervously for the outcome.

Could this sort of thing happen in Australia? Absolutely, but nobody has suggested it has. Some time back, the Australian Stock Exchange backed Sydney University PhD student Kathryn Wong, who studied no less than 115,000 analyst recommendations. She found that share prices were not unduly influenced by being touted by lead brokers in an IPO. What did puzzle Ms Wong, however, was that most of the movement in share prices occurred in the three days before a research report went out.

Having been a stockbroker in a previous incarnation, perhaps I can help here. It is the salesmen and women, now dubbed ‘financial advisers’, who are the most anxious to get a sniff of a stock recommendation so that they can swiftly pass it on to their biggest and best customers.

Sometimes, draft research is almost torn out of analysts’ hands. By the time a glossy report goes out in the mail, much of the dealings based on its findings may have already been done.

That said, the integrity of the well-regulated Australian securities industry is high. This strengthens the case for investing in our home market, rather than some gambling dens to the north.

There is a case for more research companies to be established independently of any broking house or bank.

But the best brains are expensive, and their output is unlikely to be tailored for small investors.



Punters line up at Burswood’s back door

SPECULATION that the State Government is about to whip the 10 per cent maximum shareholding cap off the Burswood Casino has resulted in the share price spinning up to 96 cents recently. Some believe lifting the embargo would put the company in play. Kerry Packer is tipped as a likely bidder, although he is not the only fox in the hen coop. Queensland-based Jupiter is gearing up for expansion, while Tabcorp and TAB could be tempted.

The Publishing and Broadcasting empire finds it easier to generate profits from casinos than newspapers and TV these days. PBL already has its foot on 5 per cent of Burswood, which would slot in nicely with the Crown complex in Melbourne.

Shrewd property player Bill Wyllie is sitting comfortably with 10 per cent of the resort group. Possibly he could take over the residential development projects that any incoming gaming magnate might want to discard.

Plenty of punters paid $1.50 or more for their shares in the Perth casino a few years ago.

Although the revamped team put together by chief executive John Schaap has won some kudos, Burswood needs to get more muscle if it hopes to compete in the international market.

Perhaps Kerry and James Packer will be on-hold mode while legislation to break the chains that shackle the media industry clanks its way through a hostile Senate. Permutations could then include selling Channel Nine – Ziggy Switkowski unwisely put up his hand to express interest recently – and even having another go at Fairfax.

The management has its hands full at present, however.

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