Merrill Lynch brokers say that the firm’s announcement today that it will pay analysts based on the accuracy of their forecasts is another "positive step forward" in the company’s quest to regain client trust and restore its tarnished image.
"It’s great news. It’s something that had to be done," says a Merrill producer on the East Coast. "The public looked at us as being dishonest, untrustworthy. But this move today, I believe, is that start of gaining back the trust of clients and investors. You have to start somewhere, right?"
Merrill is the first Wall Street wirehouse to pay analysts based on forecast accuracy. The move is part of the firm’s $100 million settlement with the New York State Attorney General’s office.
Merrill also said it is paring its stock-rating categories to three options -- "buy," "sell" and "neutral" -- from the four levels previously used. The new ratings will take effect in September. Merrill will also eliminate its "long-term" rating.
"That’s a good move, too," says a Merrill broker in the South. "At this juncture, any change is a good change. It’s showing clients, investors, whoever, that we’re willing to clean up our act."
Today’s announcement might also help improve the value of Merrill Lynch, at least in the long run. The firm’s value has dropped nearly $10 billion. Merrill is also considering hiring Rudy Giuliani as a spokesman in an effort to regain the trust of investors and restore its once golden image.
Some Merrill brokers, however, remain skeptical about the changes.
"The firm put us in a terrible position," says one rep. While changes are in order, he adds, "I’m not totally convinced and I know many clients and investors won’t be either. It’s going to take a while to [regain] the public’s trust and clean up a badly tarnished name."
It won’t happen overnight, he says "I doubt my clients are going to be calling me today, saying, ‘Hey, here’s another $250,000,’ just because they’ve decided to restructure analysts’ pay."
Merrill’s new compensation system, effective immediately, will base analysts' pay on performance and industry experience, and how their insights and recommendations benefit investors. Investment banking will not have input into analyst compensation, Merrill says.