Subject: [NEXTEL-1] Silence Of The Wall Street Hams

From: Marcel <[email-masked]>
Date: Tue, 10 Dec 2002 20:39:04 -0500

Silence Of The Wall Street Hams

It's not surprising that once they began achieving mass market exposure and
star power through the media, some Wall Street analysts took great pains to
attain and hold on to the public spotlight.

Now, amid the Jack Grubman scandal over analyst corruption, the question is
whether the perceptions of their roles on the financial stage should change.

Prudential Securities, for example, has invoked a policy forbidding its highly paid
analysts from talking to the media. The firm says it wants to focus instead on its
customers, who pay for such research.

Should we in the media, some of the most frequent users of financial analysts
outside their own firms, feel slighted? Not really.

After years in financial and business journalism, supplemented by a few years
working for a major Wall Street firm, I find it's easier to take a clear-eyed view of
the analyst's role in the financial world and their value to publications such as
ours.

Retail brokerage firms use favorable research to help convince clients to buy
stocks and they use unfavorable research to convince clients to sell stocks. That
is what Wall Street retail research (vs. the institutional research tied generally to
private clients and investment banking) is designed to do. It is not intended
primarily to aid the brokerage sales force in managing client investments, an
activity on which my old firm taught new recruits to spend only about 10 percent
of their time (The other 90 percent? Sales!).

We probably rely on the opinions of outside analysts too often at times. Yes,
they are valuable sources of perspective, data and insight, especially those who
do substantial legwork and establish deep, credible corporate ties. But with
increased frequency comes the possible perception by both publisher and reader
of greater credibility, a sometimes dangerous assumption.

Analysts frequently are wrong, not generally due to sloppy work or lack of ability
but because they deal with irrational, often idiosyncratic markets that can make
hash out of the best, fundamental forecasts.

Consider the recent dispute between Nextel Communications and Tom Lee, the
young but veteran wireless analyst at J.P. Morgan Chase & Co. who recently
issued a report questioning the company's accounting for churn and bad-debt
expenses.

Nextel reportedly launched a two-pronged attack on Lee, complaining about the
quality of Lee's work to his boss and accusing him of possibly leaking the report
in advance of its general release–a serious charge that a Morgan investigation
found untrue.

Nextel may be right about its numbers, but it's treading dangerous ground with
this type of approach. It smacks too much of the attacks by Qwest top dog
Joseph Nacchio on the first analyst to openly question his company's accounting
practices, concerns that later proved disastrously true.

Alternatively, Lee could be accurate and still end up having made the wrong call.
Note that since he downgraded Nextel to "neutral" five months ago, Nextel
shares roughly have quadrupled in price.

So, what does it all mean? The only certainty is–whether one is a company
dependent on the favor of the capital markets, or a reader trying to understand
why wireless company shares are so downtrodden–that it's best to take a grain of
salt with Wall Street investment opinions.

After all, even the most popular actors appear in flops from time to time.

(WW)
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