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Friday, July 25, 2008

Frank Quattrone’s Utopia

I’m quite sure everyone will take Frank Quattrone’s recent comments about returning to his glory days of conflicts between research and investment banking at face value, but at the risk of indulging his attempt at a comeback I’ll address his flawed reasoning. Mr. Quattrone believes barring Wall Street’s research analysts from participating in investment banking deals is the reason the U.S.’ IPO market share has decreased. Not so.

Among the reasons there are less IPO’s are these:

Ø Stock exchange listing fees are way too high

Ø Document filings and compliance is expensive (not necessarily a bad thing in my opinion)

Ø Global corporations have chosen to list on their home country’s exchange

Now is not the time to scale back regulation especially when it pertains to conflicts of interest. Exhibit A is the ratings agencies. Many CDO’s and mortgage backed securities received coveted AAA bond ratings due in a large part because of a conflict between the need to generate fees from Wall Street and independent, reliable research.

The one point Mr. Quattrone is spot-on about is the fact that many of Wall Street’s best research analysts have migrated to the buy-side. The stark difference in opinion about Lehman Bros. David Einhorn had versus Wall Street shows just how wide the gap is. Frankly, the only folks that trust Wall Street research are small retail investors and injecting tech-bubble conflicts will only exacerbate the problem.

Needless to say, Mr. Quattrone’s utopia would only serve to enrich him and his ilk.

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