Frank Quattrone, the Silicon Valley banker, says the financial industry “should petition to remove the Spitzer initiatives because ultimately they hurt the competitiveness of our country by denying small companies access to research analysts.”
The initiatives Quattrone referred to at a recent West Coast forum for entrepreneurs and venture capitalists, was the settlement reached by former New York Attorney General Eliot Spitzer that forced the separation of investment banking from research.
The settlement followed an investigation into whether some Wall Street analysts provided misleading ratings of companies to bolster their firm’s investment banking initiatives. As a result, banks are no longer allowed to pay analysts from revenue derived from the investment side of the business.
Quattrone, who led IPOs for Cisco Systems, Amazon, Netscape and others, told New York Times’ Dealbook Editor Andrew Ross Sorkin, “I’m not denying there’s a potential for conflict–always has been, always will be. I’m just questioning the best means of managing the conflict.”
Sorkin writes that Quattrone is right. “Analysts should be allowed to talk to their own investment bankers on occasion. Most analysts I talked to for this column said that they missed talking to bankers calling for advice ahead of a meeting, which they said made their research better and helped the banker. They argued that would perhaps make the whole franchise more valuable and give firms the impetus to spend more on research.”