Should Citibank be Barred From Equity Research

The US government owns Citibank and the government should close down the behemoth's highly corrupt research team that purely manipulates stocks.

2009 will go down as the year when the government needed to take ownership of the largest banks in order to avoid a complete meltdown of the system.  Remarkably, just 9 months later, the economy seems to have fully recovered, with the stock market surging 65% over that period.  Many have written on BestCashCow.com of the injustices related to the bailouts (I, for one, found the recent piece on the AIG bailout yesterday to be great), but others argue that the past is the past and it is time to look forward.

Looking forward, I am asking if analyst should continue to be permitted to make comments on companies about which they know nothing in a clear (not veiled) attempt to manipulate the market for their clients.  This very practice was targetted as a cause of the 2000-2001 market collapse, and in 2002 and 2003, the SEC and the NY Attorney General's office vowed to address the issue, but seemed to have done nothing other than found a convenient fall guy in Henry Blodget.  While analysts may no longer be manipulating stocks for themselves after 2003, they are clearly still doing it for their clients.  Now as we have reached the other side of the second collapse in the decade, it is clear that sell-side research is as abusive and as manipulative of a tool as it has ever been.  Unfortunately, over the last week, it has become clear that no bank has more eggregiously manipulated the market through faulty research than Citibank, which is especially ironic and disturbing now that it is owned by the government.

The face of Citibank's research team is Tobias Levkovich - a permabull who makes his living pushing himself on CNBC.  I am amazed that Mark Haines can keep a straight face when he introduces him without questioning whether this is an appropriate time for our government to be employing someone who provides no real insight, but seems only to be in the business of pumping the himself on CNBC.

It is when you get to the individual Citibank analysts and their recommendations, the blatant manipulation and corruption becomes clear.  Pharmaking wrote an excellent article here about Yaron Webber a Citibank analyst who has written about biotech stocks without any real understanding of the industry for years.  Webber last week took and misinterpreted information on Amylin that was over seven weeks old in order to drive Amylin down dramatically.  Webber's analysis was so wrong that I cannot imagine that the article was written for any purpose other than to drive down this heavily shorted stock to enable the bank's short clients to cover before the end of the year. 

If Levkovich and Webber are not enough to drive you berzerk, the most extraordinary thing happened today with the Citibank's coverage Russian-dairy company Wimm Bill Dann (WBD).  On December 17, a group of Citibank analysts downgraded WBD on the basis that it was overvalued and had run too far too fast.  The stock quickly fell over 11% on a day when the market was very strong.  Today, some two weeks later, the same group of analysts upgraded the stock, citing a growing market for their products, and the stock instantly gained the 11% that it had lost merely two weeks ago.  I don't know if Citibank's analyst were pressured by WBD or the Russian mafia to reverse their position on WBD but the entire sequence of events, and the effort that they had on the marketplace, were remarkable.

As we ring out the past decade, and ring in a new one, we have many issues that still need to be addressed.  Abusive market practices is one.  Our government should use its ownership position in Citibank to close sell-side research there completely, and give the SEC a clear signal that it is time at last to place meaningful regulations that curtail clear sell-side analyst moves to manipulate stocks for clients.

Jason Rodgers
Jason Rodgers: Jason Rodgers was an experienced research analyst for a major bank prior to retiring to run his own investment consultancy in beautiful Lihue, Hawaii. Jason contributed articles to BestCashCow from 2008 to 2014.

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