[A-List] Merrill Lynch next?

["Keaney Michael" <Michael.Keaney@xxxxxx>]

It seems the drip-drip of bad news concerning Merrill Lynch will not stop.

For previous pieces see
http://lists.econ.utah.edu/pipermail/a-list/2001-December/016990.html
http://lists.econ.utah.edu/pipermail/a-list/2002-May/019312.html
http://lists.econ.utah.edu/pipermail/a-list/2002-June/019442.html

This piece is particularly ironic, given all the rubbish peddled by the
likes of the recently departed "Rudi" Dornbusch about the cronyism of Korean
capitalism, as opposed to the shiny white US version...


Contrite banks move to limit Korea damage
By Andrew Ward in Seoul
Financial Times; Aug 14, 2002

UBS Warburg and Merrill Lynch were careful to appear regretful yesterday
after South Korea's financial watchdog punished the pair for leaking equity
research to favoured clients ahead of other investors.

Merrill stressed how "seriously" it viewed any failure to keep the "highest
standards of professional behaviour". UBS thanked Seoul's financial
supervisory service (FSS) for identifying "weaknesses in our administrative
approach".

However, the conciliatory tone was less an admission of guilt than a
reflection of the banks' desire not to further jeopardise their positions in
one of Asia's fastest-growing markets.

In private, the response was less polite. Insiders at UBS and Merrill feel
persecuted by the FSS and unfairly hounded by the occasionally nationalistic
South Korean press.

"If the same thing happened in another country we would not have been hanged
like we have here," said an official of one of the guilty banks. "The damage
is not the formal punishment, it is the damage to our reputation." The FSS,
meting out its first serious punishment against foreign institutions since
it was established in 1999, said it was protecting investors by tightening
regulation of South Korea's sometimes-unruly financial markets. But critics
suspected the investigation was designed to punish foreign institutions for
their heavy selling of South Korean stocks this year and curb their growing
influence over Seoul's stock market.

The bitter saga began in early May, when Jonathan Dutton, UBS's influential
semiconductor analyst in Seoul, downgraded his rating of Samsung
Electronics, South Korea's largest company, citing concern about weak chip
prices.

Shares in Samsung plunged by nearly 8 per cent when the report was released.
But heavy selling of Samsung shares the day before roused suspicions that
some investors were tipped off.

Samsung Electronics asked the FSS to investigate whether the report was
leaked, citing concern for its shareholders. However, some analysts accused
the powerful company of instigating an investigation as punishment for Mr
Dutton's damaging downgrade.

As scrutiny of Samsung's role in the affair mounted and foreign brokers
alleged a witch-hunt, the FSS extended the investigation into an
industry-wide crackdown on illegal disclosure, unfair trading and conflicts
of interest among both domestic and foreign brokerages. It emerged that
Merrill was also facing punishment.

The evidence presented by the FSS yesterday fell short of a cast-iron
indictment of UBS. The only unambiguous reference to the Samsung downgrade
before its release came in an internal email sent after close of trading the
previous evening.

"A morning meeting agenda, which indicated the Samsung downgrade, was
inadvertently distributed internally on the evening of May 9," said UBS.
"However, this occurred when the Korean market was closed and the report was
later made available to all clients in the early hours of May 10 before the
Korean market opened."

In the absence of overwhelming evidence against Mr Dutton, the FSS cited
several other occasions when UBS and Merrill had broken disclosure rules and
a variety of other regulations. Both banks have received warnings and
several staff have been censured, suspended or fined.

However, an official at one of the guilty banks said: "Some of the things we
are accused of here is common practice elsewhere. We don't feel we've done
anything terribly wrong."

The FSS insists that its ongoing scrutiny of the securities industry will
treat domestic and foreign institutions equally. "The proof of the pudding,"
says one foreign banker, "will be how many local brokerages get
investigated."