A Paris court decision last week against the US bank Morgan Stanley has paradoxically caused a sigh of relief among financial analysts who feel it has vindicated their integrity.
A Paris appeals court upheld a complaint by the luxury products giant LVMH, which charged that the stockbroking arm of Morgan Stanley had damaged it with incomplete financial analysis.
But the US bank was cleared of the most serious charges of intentionally denigrating LVMH, which had prompted the original court decision.
On Friday, lawyer Jean-Michel Darois, acting for Morgan Stanley, said that the appeal court decision had upheld only "minor errors."
He said: "The most serious of the supposed errors which had been upheld by the [commercial] court have been struck down by the appeal court."
"We're delighted that the Paris appeal court rejected the essential points of the LVMH complaints," said Patrick Ponsolle, chairman of Morgan Stanley France, who sees the ruling as a "decisive victory for freedom of expression, analysts' independence and for the financial sector as a whole."
The Paris tribunal confirmed a decision by a commercial court on January 12, 2004, which had found that "Morgan Stanley was at fault to the prejudice of LVMH" because of financial analysis published by the investment bank between 1999 and 2003.
But the appeal court did not rule on the amount of the prejudice, which the commercial court had valued at 30 million euros (US$38 million). The appeal court said an expert would calculate the moral and material damages.
LVMH had been seeking more than 200 million euros in damages.
The case stemmed from research Morgan Stanley published in 2002 at the height of a bitter tussle between LVMH and rival Gucci, which was a Morgan Stanley client.
LVMH alleged that the comments by the bank's analysts had forced it to back away from a corporate bonds issue with a resulting loss of 107 million euros.
LVMH accused the analyst at Morgan Stanley, Claire Kent, of having denigrated it in financial studies and recommendations aimed at investors, allegedly with the deliberate intention of weakening the position of the French group against its rival Gucci.
Jean-Paul Pierret, in charge of strategy at Natexis Bank and vice president of the French Society of Financial Analysts, said the case had provided a timely reminder of the need to respect ethical rules in order to avoid conflict of interest.
To avoid bias, financial houses which employ analysts must isolate these as far away as possible from their employers' banking activities, especially teams tasked with providing analysis on mergers and acquisitions.
This separation, nicknamed the "Wall of China" by bankers in the English-speaking world, is already in use by the major banks and the process has been accelerated by recent financial scandals in the US.
The conflict of interest at the heart of investment banks stems from the desire of banks to win investment banking business from companies while also operating a brokerage service, which employs analysts to issue independent advice to investors.
Financial analysis as a human activity "cannot be entirely objective or complete," Pierret said.
It did not only consist in adding up figures and dissecting results, but involved the opinion of the analyst.
He said the "Wall of China" separation between investment banking and analysts had resolved part of the risk of conflict of interest but the independence of the financial analyst also depended on his or her individual behavior, especially in contacts with companies.
"The judgment of an analyst is necessarily influenced by the quality of the relations he develops with the companies, which are sometimes determining factors when he has to make long-term forecasts about a sector," he said.
Patrick Houart, an adviser to LVMH president Bernard Arnault, expressed satisfaction with the outcome of the Paris hearing.
NO HUMAN ERROR: After the incident, the Coast Guard Administration said it would obtain uncrewed aerial vehicles and vessels to boost its detection capacity Authorities would improve border control to prevent unlawful entry into Taiwan’s waters and safeguard national security, the Mainland Affairs Council (MAC) said yesterday after a Chinese man reached the nation’s coast on an inflatable boat, saying he “defected to freedom.” The man was found on a rubber boat when he was about to set foot on Taiwan at the estuary of Houkeng River (後坑溪) near Taiping Borough (太平) in New Taipei City’s Linkou District (林口), authorities said. The Coast Guard Administration’s (CGA) northern branch said it received a report at 6:30am yesterday morning from the New Taipei City Fire Department about a
IN BEIJING’S FAVOR: A China Coast Guard spokesperson said that the Chinese maritime police would continue to carry out law enforcement activities in waters it claims The Philippines withdrew its coast guard vessel from a South China Sea shoal that has recently been at the center of tensions with Beijing. BRP Teresa Magbanua “was compelled to return to port” from Sabina Shoal (Xianbin Shoal, 仙濱暗沙) due to bad weather, depleted supplies and the need to evacuate personnel requiring medical care, the Philippine Coast Guard (PCG) spokesman Jay Tarriela said yesterday in a post on X. The Philippine vessel “will be in tiptop shape to resume her mission” after it has been resupplied and repaired, Philippine Executive Secretary Lucas Bersamin, who heads the nation’s maritime council, said
REGIONAL STABILITY: Taipei thanked the Biden administration for authorizing its 16th sale of military goods and services to uphold Taiwan’s defense and safety The US Department of State has approved the sale of US$228 million of military goods and services to Taiwan, the US Department of Defense said on Monday. The state department “made a determination approving a possible Foreign Military Sale” to the Taipei Economic and Cultural Representative Office in the US for “return, repair and reshipment of spare parts and related equipment,” the defense department’s Defense Security Cooperation Agency said in a news release. Taiwan had requested the purchase of items and services which include the “return, repair and reshipment of classified and unclassified spare parts for aircraft and related equipment; US Government
More than 500 people on Saturday marched in New York in support of Taiwan’s entry to the UN, significantly more people than previous years. The march, coinciding with the ongoing 79th session of the UN General Assembly, comes close on the heels of growing international discourse regarding the meaning of UN Resolution 2758. Resolution 2758, adopted by the UN General Assembly in 1971, recognizes the People’s Republic of China (PRC) as the “only lawful representative of China.” It resulted in the Republic of China (ROC) losing its seat at the UN to the PRC. Taiwan has since been excluded from