us brokers in huge payout-------

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    Friday, 20 December, 2002, 22:16 GMT
    Banks pay $1.4bn to settle stock tip row

    Wall Street workers face new work practices

    Wall Street banks and brokerages are to pay more than $1.4bn (£875m) to settle a row with US regulators over stock tipping.
    The firms had been accused of giving investors unreasonably favourable reports on companies with which they hoped to win investment banking business.

    The agreement will permanently change the way Wall Street operates

    New York attorney general Eliot Spitzer

    The 10 institutions, which include most of the giants of the financial industry, have agreed to pay $900m in relief for investors, $450m to fund independent research and $85m towards investor education.

    The settlement also calls for the banks to break the links between their research and investment banking units.

    Protecting the small investor

    "The agreement will permanently change the way Wall Street operates," said New York attorney general Eliot Spitzer in the settlement statement.

    "Our objective throughout the investigation and negotiations has been to protect the small investor and restore integrity to the market place."

    Announcing the settlement at a press conference, Mr Spitzer said retail investors knew there were no guaranteed returns in the market.

    "But the one thing they deserve is honest advice and fair dealing," he said.

    "That is what this deal is designed to produce."


    Hardest hit under the settlement is Citigroup, whose Salomon Smith Barney arm has had to pay $400m in a combination of penalties and payments towards independent research and investor education.

    Salomon Smith Barney (Citigroup) - $400m

    Credit Suisse First Boston - $200m

    Merrill Lynch - $200m

    Morgan Stanley - $125m

    Goldman Sachs - $110m

    Deutsche Bank - $80m

    UBS Warburg - $80m

    Bear Stearns - $80m

    J P Morgan Chase - $80m

    Lehman Brothers - $80m

    "We are pleased that today's announcement of a settlement-in-principle will put these regulatory matters behind us," Citigroup said in a statement.

    "We share with our regulators the goal of restoring investor confidence. We have faced the difficult issues of the past several months head-on, and we have implemented new practices and standards that are leading the industry," Citigroup added.

    Credit Suisse First Boston and Merrill Lynch will both have to pay a total of $200m, although the Merrill Lynch total includes the $100m it paid earlier this year to settle charges that its analysts had misled investors.

    Stopping the spin

    During the bull market of the 1990s, it is alleged, banks used their research analysts to drum up business.

    Banks would publish overly optimistic research on companies in order to win more business for their investment banking arms.

    Regulators have also alleged that some banks pushed shares in new flotations - where the share price was expected to rise immediately - to senior executives, a process known as "spinning".

    In order to counter these practices the terms of the settlement include:

    A complete ban on the "spinning" of new flotations or initial public offerings (IPOs).

    Firms will have to "severe the links" between research and investment banking. Analysts will be barred from being paid for research by the investment banking arms and will not be able to go on "pitches and road shows" to attract business.

    Firms will have to provide retail investors with independent investment advice. For a five-year period each of the ten firms will have to "contract with no less than three independent research firms that will provide research to the brokerage firm's customers". An independent monitor for each firm will be chosen by regulators.

    Each firm will have to publish its ratings and price target forecasts so analysts' performance can be compared.

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