Frank Quattrone wants to repeal the regulations that built a wall between sell-side research analysts and investment bankers arranging initial public offerings. Speaking at a technology conference at Stanford University yesterday, Quattrone said the regulations were making US markets less competitive and creating a dearth of IPOs.
"It hurts the competitiveness of our country to deny companies access to research analysts," he said at the AlwaysOn conference. The remarks were some of his first public statements on markets since he formed his new firm in March. In 2003, he was accused of steering hot IPOs to clients to win investment-banking business. A later conviction on obstruction of justice charges was overturned by the courts.
The reforms were put in place after then-Attorney General Eliot Spitzer accused Wall Street analysts of publicly recommending stocks they to win investment banking fees. They now prevent sell-side analysts from sharing in profits from IPO fees.
Quattrone said that the reforms have had the unintended consequence of pushing some of the best analysts into hedge funds and private equity firms. Wall Street analysts now focus almost exclusively on large corporations, ignoring start-ups, Quattrone said.
One of the grand ironies of the prosecution of Quattrone was that investors who allegedly "benefited" from being let in on hot IPOs would have been poorer if they held those stocks as the tech bubble burst, while the "victims" of this discrimination were likely better off. Now Quattrone wants to bring back the IPO market by reviving conflicted stock analysis, which would undoubtedly enrich venture capitalists, entrepreneurs and investment bankers. But the more important question should be whether this "dearth" of start-up IPOs has hurt or helped investors?
Portfolio's Megan Barnett says Quattrone is "dead wrong."
The fact is, start-ups shouldn't have to rely on their bank's analysts to sell their story for them. If their business model is sound, and their valuation reasonable, their stocks will get noticed by institutions.
And why should any bank's institutional clients be subjected to a sales pitch from an analyst who is fundamentally incapable of providing an objective opinion?