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Private musings of analysts

Just when you thought their reputations could sink no lower, perfidious stock analysts roared back into the news last week. That's the trouble with these long-running corporate scandals: No matter how heartily investors long for good news, the bad just keeps on coming.

First we learned of the Merrill Lynch analyst who was bullish on Tyco International stock and exchanged gifts of expensive wine with L. Dennis Kozlowski, the former chief. This mutual admiration society emerged last week when Robert M. Morgenthau, the New York district attorney, brought a new indictment against Kozlowski, whose greed apparently knew no bounds.

Now comes a new spate of e-mail messages from last year between two former analysts at Credit Suisse First Boston, Jamie Kiggen, an Internet analyst, and Laura Martin, who covered entertainment.

The subject of the messages: the firm's coverage of AOL Time Warner in March 2001.

In mid-March of that year, just after AOL and Time Warner merged, investors were growing concerned that the company would not be able to meet its aggressive revenue estimates of more than US$40 billion for the year. An analyst at Merrill Lynch cut its revenue estimates, and Kiggen asked several associates, including Martin, to get together to discuss reducing Credit Suisse's estimates.

On March 29, Martin replied by e-mail: "This may be one that you and I disagree on. I would not lower numbers on AOL, even though they can't make them."

Martin goes on to suggest that the analysts focus instead on other aspects of the company's financial statements, like "options issuance value."

That way, "we leave the income statement intact," she said, and avoid enraging the company, "and we don't waste time and energy focusing on what everyone else is focusing on."

Kiggen apparently followed that advice. In May, he wrote of the firm's confidence in AOL's ability to deliver on its 2001 forecast. It wasn't until August that he lowered his estimates for the second half of last year.

Kiggen left Credit Suisse this year and could not be reached for comment. Martin, now executive vice president for investor relations at Vivendi Universal, said: "My focus was, let's do value-added work that no one else was doing, that doesn't require us to make that trade-off. I don't think you do investors a favor if you so irritate a company that they stop talking to you."

But William F. Galvin, secretary of the Commonwealth of Massachusetts, whose staff found the e-mail messages in investigating analyst practices at Credit Suisse, said: "It seems to me this is really a smoking gun. Because it is AOL it involves tens of thousands of investors. These analysts knew they were misleading investors and yet they gave bad advice. They felt their allegiance was to profits and AOL, not to investors."

A Credit Suisse spokeswoman said the firm was working closely with regulators on analyst issues.

In the mania for technology stocks, Kiggen wrote breathlessly of the potential of Internet shares. He was also a heavy user of unattainable price targets.

In May 2000, Kiggen, then at Donaldson, Lufkin & Jenrette, assigned a price target of US$160 to GoTo.com. The stock was trading at US$15.13 at the time. It never came close to the target.

Kiggen was also the subject of a complaint filed in July 2000 with the National Association of Securities Dealers and the Securities and Exchange Commission. Eric P. Von der Porten, portfolio manager at Leeward Investments in San Carlos, California, complained that Kiggen had advised investors to buy shares in Amazon.com based on unreasonable estimates of what a customer would spend at the Web site over a lifetime. No action was taken.
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