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MARK GETTY SNAPS AT THE ANALYSTS
January 11, 2001
The following article was published in the Sunday Telegraph in London on December 17th
and is published here with permmission.
By: Neil Bennett
MARK GETTY should be pleased with the international capital markets. In the past five
years they have provided the finance that has enabled him and Jonathan Klein, his
partner, to build Getty Images into the world's largest photographic images group.
Today Getty's company bestrides the photographic world just as his grandfather's did
the oil industry.
But Getty is deeply angry. Angry with the investment banks that he feels fuelled the
technology boom to unsustainable levels and precipitated its collapse. Even angrier
with the analysts within the investment banks, who he believes have abandoned any
attempt to be objective stock pickers and have become powerful marketing tools for
their employers. And most angry at the repeated incidents of barely concealed blackmail
he and his company have been subjected to by analysts trying to win fees for their
banks.
Most company chiefs would not dare criticize the bulge bracket firms, or even their
smaller imitators, for fear of reprisals. But Getty's comments hit home hard and carry
even more weight, given his track record in business.
Getty now believes that regulators such as the Securities and Exchange Commission in
the US should act in the wake of the dotcom collapse to prevent broking analysts being
used to generate investment banking fees. "Analysts have forgotten how to analyze
business and they have forgotten how to be objective about them," he says.
"In the past the analysts were the department you never saw. They were the nerds at
school. You went to see the investment bankers and maybe the salesmen but the Chinese
walls divided them from the analysts.
"But new technology and the internet changed all that. The role of analysts in
describing these things and their application became fundamental in the markets, so
their role in the investment banks became all important. What I am critical about is
the way they have become stars."
Getty tells hair-raising tales of the pressure the analysts can put on companies to do
business with their banks. "We have had tons of conversations with investment banks
over the past few years where the analyst says: 'If you don't generate fees for us I am
going to drop my coverage of your company'.
"Coverage is an important issue for us. If the analysts stop covering us, suddenly our
liquidity would dry up and the volatility of our share price would increase, which
would make investors nervous. In the past few years we have had to carve banks into
deals when they have done absolutely no work for us merely to keep them sweet. Even if
we had an acquisition to do we would not have taken their advice anyway."
So there is intense pressure on companies, even as large and as well known as Getty
Images, to pay millions of dollars in broking and banking fees to keep the analysts on
side. Getty admits this is mainly a US phenomenon but feels it has been imported to
London by the US banks.
Once a company hires an investment bank, the research then flows from the analyst. But
Getty says the analysts' notes then bear little resemblance to a balanced outlook of a
company's fortunes. "Investors are not being told the truth about companies and they
should not rely on this analysis."
Getty believes the damage these analysts have done by ramping share prices has been
exacerbated by the star culture that grows up around some of them. Some investors
follow certain analysts like teenagers would chase pop stars. "They behave like
groupies towards the research stars they adore." As a result, the stocks they pick soar
ever upwards until the inevitable collapse.
Certainly a great deal of damage has been done to investors' wealth in the past few
months by the collapse of the technology bubble. Getty point out that Nasdaq has
halved since its peak, wiping $2,000 billion off share prices. Naturally, he
stresses, you cannot blame any one group for such a cataclysmic slump -- venture
capitalists, entrepreneurs, auditors and day traders all played their part in the
ludicrous overvaluation of technology stocks earlier in the year. But the banks have
played a large role.
The damage, he believes, has gone further than the publication of a few
over-enthusiastic research notes from partial forecasters. Until recently, the
investment banking system was geared to floating companies, and company, and then
writing them up positively to more their share prices.
"The amount of absolutely appalling companies that have come to market beggars belief.
You could have floated the Titanic on the market six months ago. Yes, some banks will
only float good companies. But others could not give two hoots if you have a business,
a business plan or any business experience."
Getty believes that now the boom has bust, steps should be taken to insure it does not
happen again. "The Chinese walls have to be rebuilt. The onus should be on the banks
and their compliance officers to ensure the analysts are kept separate from investment
banking and they should be punished for breaches.
"First of all, more attention should be brought to bear on this issue and then a
solution may come out of the woodwork. It's always a reaction to regulate when markets
go down and I think it will happen this time round. It's pointless to blame people
like day traders or entrepreneurs for the bubble because you cannot regulate them. You
should place blame where you can do something about it, where you can regulate - the
investment banks."
Feedback:
Georgette
Having followed the US capital markets with ever increasing astonishment and
disbelief and as a former investment banker myself, I find Mark Getty's comments ironic.
From the time of their flotation, Getty and Klein have performed brilliantly as
financial engineers, capitalising on the latest investment fads to appeal to the one
constituency they really understand - Wall Street during an economic boom.
Why does he make these criticisms after the collapse?
Perhaps because the fat lady has begun to sing. They face the hard work of making their
acquisitions perform, without the smokescreen of yet another major deal to obfuscate the
underlying results of existing operations. This requires a wholly different set of
skills which, having laid waste to most of the top and middle management teams in our
industry, they will not find easy to obtain. In addition, recession looms and how many
people in their top team have managed an agency during hard times?
Our industry needs Getty to be well led and well managed, because Corbis will never be,
under Gates. Lets hope the brilliant financial engineers will now be augmented by
equally brilliant operational people.