Fri, Sep 21, 2001 page19

• Business Focus: Wall Street restrained with ratings

  Investors say that the business of recommending stocks has changed because no one wants to appear to be exploiting the terrorist attacks or causing people to rush to unload shares

  • BLOOMBERG
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  Morgan Stanley Dean Witter & Co analyst Kevin Murphy reduced his rating on Continental Airlines Inc shares in a report called Introducing 2003 Forecast. In January, when he raised his recommendation, the report's title read: Fed Cuts Rates to Rewind Cycle -- Strong Buy! Restraint is popping up at some of Wall Street's biggest firms, which didn't change any ratings on Monday when stock trading resumed after the destruction of the World Trade Center.

  Investors say that the business of recommending stocks has changed because no one wants to appear to be exploiting the terrorist attacks or to send people rushing to unload shares.

  "If I were an analyst, would I want to make a big, visibly provocative, negative call? It's human nature, I probably wouldn't," said Joseph Amato, Lehman Brothers Inc's director of global equity research. "We are telling our analysts to be very visible with clients in helping them sort through this industry by industry and company by company."

  

  Traders respond to market volatility in the Dow Jones S&P 500 futures pit near the close of trading on Wednesday at the Chicago Mercantile Exchange. Despite investors fears that last week's terrorist attacks will take its toll on the economy, the Dow Jones industrials close down 141 points, partly recovering from a 423-point drop.

  PHOTO: AP

  Murphy's reserve extended beyond his report titles. In his January note, he called his rating change an "upgrade." In the report published late Wednesday, he didn't define his move, saying only, "Our rating on Continental Airlines is outperform. Before the WTC disaster our recommendation had been strong buy."

  Calls to Murphy and Michael Blumstein, Morgan Stanley's North American director of equity research, weren't returned.

  Spokeswoman Diana Quintero said they declined to comment.

  Six Morgan Stanley employees have been reported missing since the Sept. 11 attack. The firm was the trade center's largest tenant, with 3,700 people. A memorial service for them was to be held yesterday.

  Morgan Stanley acknowledged its restraint in its latest research reports.

  Each note contains a message from the firm, saying: "All of us in Equity Research are struggling to come to terms with the terrorist attacks in the US. But there is some solace in returning to the challenges of our business and trying to make sense of the changed world. Our analysts are responding to client inquiries as best they can, under the circumstances and on the basis of very preliminary information. We thank all our clients for their concerns and prayers." Investors said they understood why Morgan Stanley turned to more understated commentary.

  The attacks on the trade center and Pentagon were "an exogenous event," said Dan Rivera, head of equities for American Express Financial Advisors in Minneapolis, which manages about US$180 billion in stocks. "It's one thing to say the tourism industry will be affected or something like that. To get far out and make big calls would be an unwarranted and not sane thing to do."

  For Murphy, that means trying to explain why Continental Airlines is down 56 percent this week and why he forecasts a US$40 share price in 12 months, up from a close of US$17.46 Wednesday.

  His answer: The US government will likely help bail out the airlines, and the Federal Reserve's "moves to stimulate the economy" should help Continental earn US$5.00 a share in 2003.

  Continental is expected to earn US$0.62 this year, according to Thomson Financial/First Call.

  Delta Air Lines Inc Chief Executive Leo Mullin has said the industry expects to go through US$24 billion in cash over the next year because of the attacks. While Murphy said a bailout is likely, he doesn't know how much companies will get or how the aid will be allocated.

  Lehman's Amato, who spoke on his cell phone from the Sheraton hotel in Midtown New York that has become his office since the firm lost 100,000㎡ of office space in the attack, said analysts are doing the best they can with what they've got.

  "We've asked people to be thoughtful and careful with what and how they are communicating with clients," he said. "We're in a client-service business. The most important thing they need to do is sort through the issues that have been created."

  He added that his first goal was to let clients know "we're up and running and where they can reach us." American Express's Rivera said he appreciates the gesture.

  "What the Wall Street guys are doing is the right thing and the sensible thing," he said. "If they get very provocative or too hung up in forecasting, that could spell big damage to people when it's not warranted."
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