Exactly. Upgrade when some big boy client wants to get out at a better price. Downgrade when big client wants to buy. Pretty corrupt system.
Pretty naive interpretation. I'm not saying that corruption does not exist in the industry, any more than I would claim that corruption doesn't exist in (say) the legal profession, but the kind of simple corruption outlined is not viable and I believe the incidence is very low. As a starting point, analysts are very closely monitored so the risk is high relative to the reward. The reward is uncertain, because if you changed your rating to suit one client, you could quite easily anger another client who had a position in the opposite direction. As an analyst, your credibility (and in turn your remuneration) depends to a large extent on the consistency and the clarity of your arguments for your recommendations. You can't change a rating one day, then change it back the next without negative repercussions. In any case, changes in rating are usually overseen by a small committee (which usually includes somebody from the legal department) so that there has to be a consensus that the change is justified. This makes it difficult for the analyst to make arbitrary adjustments to ratings. As for rewards, as a practical matter for large stocks the effect of a change in rating is usually small in scope (a few percent) and short in duration (a day or two at most). It can easily get swamped by general market moves. Your client's portfolio is not going to be much affected even in a best-case scenario. Back on the subject of risk, remember that every phone call and every email is recorded at an investment bank. Analysts can't just phone up clients and tell them to get in/out. The authorities also investigate suspiscious moves that took place ahead of rating changes. It would take a lot of effort to get round all this, and for what? Clients know the score these days. Even if a client is annoyed at one of your calls, maybe your rating drops a bit at that client for a month or two, but if you're good they will warm to you again. You still have your salary and your bonus. On the other hand, if you get caught front-running or tipping off clients your career as an analyst is almost certainly over. It doesn't make sense to put a good job at risk for so little gain for either you or the client. Suss (defensive, moi? )
I think his comments were spot on. Analyst upgrades and downgrades are all B.S. to enable un loading their own and large clients books on fools like you.
OK, I can understand why people want to think that, but given the lack of economic incentive for the analyst, what is the reasoning behind your conclusion? I mean, I realise that I can't disprove a conspiracy theory but I would be interested in the thought behind it. Suss
1) An analyst can only influence the market if he has credibility i.e. people watch him and follow his research. 2) If he makes changes to ratings that are arbitrary and/or unexplained he will lose that credibility. 3) As a result the analyst will no longer be followed by clients and will no longer be able to move the market. 4) Without a following, he is of no use to the company, so he ends up losing his job. So, please tell me again, how does trying to manipulate ratings for clients (even if he could please all clients at once, which is not possible) make economic sense? Suss