In a major outbreak of "glasnost" in Wall Street investment banking, Merrill Lynch will open a website tomorrow that will disclose investment-banking relationships for companies that are covered in its research reports.
This is one of the main parts of a deal with New York Attorney General Mr Eliot Spitzer, under which Merrill Lynch agreed last week to changes in its stock-research procedures so that investors would know if the firm was doing banking business with companies whose stock it was promoting.
Talks about a more comprehensive overhaul to avert possible criminal charges against the firm have stalled over the issue of money but may be resolved this week. The website will disclose "for companies covered in research reports, those companies which have engaged in publicly announced equity underwritings and merger and acquisition transactions over the prior 12 months, for which Merrill Lynch has received, or is entitled to receive, compensation", the firm said in a statement announcing the deal.
By June 3rd, Merrill Lynch will replace this website disclosure by stating in research reports whether it has received, or is entitled to receive, investment-banking fees from companies that are the subject of corporate research. It will indicate that "investors should assume that Merrill Lynch is seeking, or will seek investment banking and other business from the covered company".
On the basis of the pact, a court order sought last week by the attorney general following a 10-month probe was lifted.
Mr Spitzer said he had found cases where Merrill Lynch analysts voiced reservations, sometimes contemptuous, in internal e-mails about companies that the Wall Street firm was recommending to the public.
Merrill Lynch has denied Mr Spitzer's charge that over-optimistic ratings were issued to encourage investment-banking business fees or that investors were misled, causing them to lose money. The pact was approved by state Supreme Court Judge Martin Schoenfeld and is separate from the financial firm's broader settlement negotiations with Mr Spitzer's office which is still considering possible criminal charges for misleading investors.
The talks stalled on Thursday as Merrill Lynch officials said the company would not be willing to pay $100 million (€112.6 million) to settle the charges.
The company said that the website disclosure "far exceeds the current industry standard" and that it was "committed to providing its clients with all the information they need to assess research reports and make investment decisions".
