66% of Brokerage Firms Continue to Recommend Failing Companies, According to Weiss Ratings.Business Editors PALM BEACH GARDENS, Fla.--(BUSINESS WIRE)--Jan. 21, 2003 Lehman Brothers Lehman Brothers Holdings Inc. (NYSE: LEH), founded in 1850, is a diversified, global financial services firm. It is a participant in investment banking, equity and fixed income sales, research and trading, investment management, private equity, and private banking. and Salomon Each Give Four "Sells" as Total Number of "Sell" Ratings Jumps to 50% Among the 30 brokerage firms covering companies filing for bankruptcy bankruptcy, in law, settlement of the liabilities of a person or organization wholly or partially unable to meet financial obligations. The purposes are to distribute, through a court-appointed receiver, the bankrupt's assets equitably among creditors and, in most between September 1 and December 31, 2002, 20 firms, or 66 percent, continued to recommend that investors buy or hold shares in the failing companies right up to the day they filed for Chapter 11, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. a study by Weiss Ratings, Inc., the nation's leading independent provider of ratings and analyses of financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. companies, mutual funds, and stocks.(1) This represents a modest improvement compared to earlier Weiss studies that showed 74 percent of brokerage firms recommended companies failing between May 1 and August 31, 2002, and 94 percent recommended those failing between January 1 and April 30, 2002. "We have seen widespread investigations by the state regulators and the SEC, a massive public outcry, and solemn sol·emn adj. 1. Deeply earnest, serious, and sober. 2. Somberly or gravely impressive. See Synonyms at serious. 3. Performed with full ceremony: a solemn High Mass. 4. promises by Wall Street to change its ways," commented Martin D. Weiss, Ph.D., chairman of Weiss Ratings, Inc. "Despite all this, most brokerage firms continue to urge investors to buy or hold the shares in companies, even as their lawyers are marching up the steps of bankruptcy court bankruptcy court n. the specialized Federal court in which bankruptcy matters under the Federal Bankruptcy Act are conducted. There are several bankruptcy courts in each state, and each one's territory covers several counties. . However, on a positive note, at least some notable firms have given up this egregious e·gre·gious adj. Conspicuously bad or offensive. See Synonyms at flagrant. [From Latin practice in recent months." During the four-month period ending December 31, 2002, 51 public companies filed for bankruptcy. Of this group, 18 bankrupt companies were rated by the brokerage firms covered in this analysis, receiving a total of 55 ratings.(2) These ratings break down as follows:
Breakdown of Ratings Issued by the 30 Brokerage Firms on
Companies Filing Chapter 11
On Date of 6 Months Before
Bankruptcy Filing Bankruptcy Filing
------------------- -------------------
# of # of
Ratings Issued Ratings % Ratings %
---------------------------------------------------------------------
"Buy" or equivalent 4 6.8 13 22.0
"Hold" or equivalent 21 35.6 30 50.8
"Sell" or equivalent 30 50.8 8 13.6
Dropped coverage/not rated 4 6.8 8 13.6
-------------------- -------------------
Total 59 100% 59 100%
In analyzing the breakdown of ratings issued on failing companies, Weiss found that the number of "sells" rose to 50.8 percent by year-end as the industry responded to calls for reform. Conversely con·verse 1 intr.v. con·versed, con·vers·ing, con·vers·es 1. To engage in a spoken exchange of thoughts, ideas, or feelings; talk. See Synonyms at speak. 2. , the number of "buy" and "hold" ratings declined to 6.8 percent and 35.6 percent, respectively. The following graph illustrates how the distribution of ratings on bankrupt companies has changed over the course of the three time periods evaluated:
% of Ratings Issued to Companies Filing for Bankruptcy in 2002
Jan. - April May - Aug. Sept. - Dec.
------------ ---------- ------------
"Buy" or equivalent 31.4% 22.2% 6.8%
"Hold" or equivalent 59.5% 44.4% 35.6%
"Sell" or equivalent 9.1% 27.0% 50.8%
Dropped Coverage/not rated n/a 6.4% 6.8%
"The increase in sell ratings by brokers is another positive sign," added Dr. Weiss. "What remains to be seen is whether or not the industry will continue to improve once regulators turn their attention elsewhere." Nine Brokerage Firms Issue Only "Sells" to Failing Firms Among the 30 brokerage firms studied, nine, or 30 percent, issued only "sell" ratings on companies filing for bankruptcy during the last four months of 2002. Lehman Brothers and Salomon Smith Barney Smith Barney is a division of Citigroup Global Capital Markets Inc., a global, full-service financial firm, that provides brokerage, investment banking and asset management services to corporations, governments and individuals around the world. accurately warned investors about troubled companies, each issuing four "sells" exclusively. The other firms that warned investors of failing companies, issuing only "sells," were Blaylock & Partners; Buckingham Research; Deutsche Bank Deutsche Bank AG (IPA: /'dɔɪ.tʃə/[1]) (ISIN: DE0005140008, NYSE: DB) (English: German Bank ; Goldman Sachs The Goldman Sachs Group, Inc., or simply Goldman Sachs (NYSE: GS) is one of the world's largest global investment banks. Goldman Sachs was founded in 1869, and is headquartered in the Lower Manhattan area of New York City at 85 Broad Street. & Co.; Kaufman Bros BROS Brothers BROS Benefits and Retirement Operations Section (King County, Washington) BROS Barnes and Richmond Operatic Society (London, UK) .; Loop Capital Markets; and Merrill Lynch Merrill Lynch & Co., Inc. (NYSE: MER TYO: 8675 ), through its subsidiaries and affiliates, provides capital markets services, investment banking and advisory services, wealth management, asset management, insurance, banking and related products and services on a global basis. . In contrast, the four brokerage firms maintaining a "buy" rating on a company filing for bankruptcy between September 1 and December 31 were Bear Stearns The Bear Stearns Companies, Inc. (NYSE: BSC) is the parent company of Bear, Stearns & Co. Inc., one of the largest global investment banks and securities trading and brokerage firms in the world. ; Credit Lyonnais; Punk, Ziegel & Company; and SCO (The SCO Group, Lindon, UT, www.sco.com) A leading vendor of Unix operating systems for the x86 platform. SCO had also offered Linux, but abandoned the line in the spring of 2003. The SCO Group is the combination of two companies: Utah-based Caldera, Inc. Financial Group. "Until further progress is made, investors should continue to check with at least one independent source when considering the stock ratings issued by brokerage firms," advised Dr. Weiss. Weiss issues safety ratings on more than 15,000 financial institutions, including insurance companies, banks, and brokerage firms. Weiss also rates the risk-adjusted performance of more than 11,000 mutual funds and more than 7,000 stocks. Weiss Ratings is the only major rating agency that receives no compensation from the companies it rates. Consumers can purchase a rating for as little as $7.95 through www.WeissRatings.com, or starting at $15 by calling 800-289-9222. Note to Editors: Available upon request are a table listing the 30 brokerage firms with their ratings on 18 companies that filed Chapter 11 between September 1 - December 31, 2002 broken out in buy/hold/sell categories and another table with a breakdown of the buy/hold/sell ratings received by those 18 companies. ----------------- (1) In total, 51 publicly traded companies publicly traded company A company whose shares of common stock are held by the public and are available for purchase by investors. The shares of publicly traded firms are bought and sold on the organized exchanges or in the over-the-counter market. filed for Chapter 11 between September 1 and December 31, 2002, with a combined peak market capitalization Market Capitalization A measure of a public company's size. Market capitalization is the total dollar value of all outstanding shares. It's calculated by multiplying the number of shares times the current market price. This term is often referred to as market cap. of $67 billion. Of these, only 18, with a combined peak market capitalization of $49 billion, were rated by the brokerage firms covered in this analysis. The analysis covered 51 stock ratings available from 30 brokerage firms six months before bankruptcy and 55 ratings at the date of bankruptcy filing. Data source: the latest ratings available on or from Bloomberg, Yahoo.com, and Briefing.com. (2) The number of ratings issued declined from 118 during the previous four-month period to 55 due to fewer large companies filing for bankruptcy between September and December 2002. The total market cap for all public companies filing for bankruptcy dropped to $67 billion, compared to $185 billion during the previous four-month study. Analysts are more likely to cover companies with larger market caps, thus the decline in the number of ratings issued. |
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