SIA Conference: Let's Get Confident!

It's official: It's a time for "building investor confidence." That’s the theme of this year’s Securities Industry Association gabfest, held at the tony Boca Raton Resort & Club in Boca Raton, Fla. Never mind that SEC Chairman Harvey Pitt resigned two days ago. Think positively.

It's official: It's a time for "building investor confidence." That’s the theme of this year’s Securities Industry Association gabfest, held at the tony Boca Raton Resort & Club in Boca Raton, Fla. Never mind that SEC Chairman Harvey Pitt resigned two days ago. Think positively.

In the main lecture hall, banners on the dais read "strength," "pride," "trust" and "integrity." If only the investing public were here to see it!

Alas, much of the investing public will never have the opportunity to stay here at the luxurious Boca Raton Resort & Club, where the SIA has been convening for more than two decades. Built in 1926 (during a past "New Era" and stock bubble), the Boca resort apes a Spanish-Mediterranean style–but in pink. A two-night golf "deluxe package" starts at $1,400.

The mood is stridently upbeat, albeit with a solemn nod to the "human toll" of the bear market on investors' retirement plans and to the 70,000 or so securities industry employees who lost their jobs. "And that's not even counting the latest round of layoffs," said Marc Lackritz, SIA president, in his address. "And it may not be over."

"As we continue to find ourselves caught in the eye of the perfect storm," Lackritz said, "it's very important to keep our perspective."

That has been the tenor of the gathering. The industry bigwigs assembled here have pointed to their role in the capital formation process as the engine of capitalism. (The industry raised some $23.9 trillion in capital for U.S. businesses from 1990 to 2002, and was integral in U.S. business innovation.) And, the SIA notes, more people own stock than ever before, and, by-and-large, retail investors are more sophisticated than ever.

Even Harvey Pitt, who was scheduled to speak here Friday, was the object of great praise. "Harvey is a brilliant lawyer and someone who cares deeply about restoring confidence in the U.S. securities markets," said Robert Glauber, CEO of the NASD, in his speech this morning. "No one should doubt Harvey's commitment to dealing with the many issues confronting our industry."

"After Enron and other scandals, most people seem to realize we got into this mess through a great deal of accounting that was unaccountable, and corporate governance that didn't govern, as well as the research and IPO problems that have gotten so much press," said Glauber.

Allen Morgan, SIA chairman and CEO of Morgan Keegan, said that in the past year the industry worked closely with markets, regulators, Congress and the investing public to foster independent research, achieve more accurate and timely disclosure of financial information and redouble efforts to educate investors.

While executives tried to put a positive face on, there’s no getting around how bad the industry is getting hit. Revenue has fallen to $195 billion. Pretax profit, which sunk to $10.4 billion in 2001, is expected to fall further in 2002 to about $8.1 billion–below 1996 levels.

The SIA pointed out the initiatives it has undertaken so the dozens of assembled journalists would get the message: We are cleaning ourselves up and throwing out the bums. (More than one executive used the phrase, "punish wrongdoers.") Sure, there were abuses, the SIA members said. But, there were only a few bad eggs. Trading volume on U.S. equity exchanges more than tripled since 1990, and look how few complaints there actually are, said Lackritz in a press briefing. The U.S. securities industry is "one of the cleanest in the world," he said.

And yet, the industry executives said, the public seemed not to have not noticed the record number of complaints and fines imposed by the self-regulating bodies of the NASD and the NYSE. Last year, the NASD expelled, suspended or barred more than 800 unfit participants from the brokerage industry, Glauber said. "This year, acting alone or jointly with the SEC, we have fined some of our largest member firms more than $105 million for IPO and analyst research abuses alone."

Meanwhile, the industry waits for another shoe to drop. "Congress for sure has not had its last word in this," Glauber said ominously. Other SIA directors warned of doing too little–or too much. In fact, Rudy Giuliani, in remarks at the start of the meeting, warned of overregulation and–and, get this, "overprosecution." (As U.S. Attorney in the 1980s, Giuliani spearheaded the insider trading cases in which he perp-walked many high-ranking Wall Streeters in handcuffs. Many of those convictions were later overturned.) Giuliani, in his entertaining remarks set around the theme of leadership in times of crisis, extolled the virtues of U.S. capitalism and insisted that the industry be free to innovate and improvise unfairly impeded by unwarranted regulation.

But Giuliani was unequivocal when asked by a reporter about the now-vacant SEC post. "I am not looking for a job," Giuliani said. When asked if President Bush would offer the top SEC job to him--and whether he would accept the post, he said, "He won't, and I won't,"

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