‘We don’t do phone calls or meetings with analysts,’ demurs the IR chief at a regional financial institution in the States. ‘Once in a great while we’ll do an investor conference. IR is a one person thing here, and I have a gazillion other responsibilities. We don’t put a lot of dollars towards shareholder relations.’
How’s that for IR at a major US public company? Granted, the firm in question is 60 percent held by employees paid largely in stock. And perhaps other shareholders are content just to watch the stock price move skywards along with the rest of the bull market, and don’t demand much attention. But are all securities firms – so vehement in the marketing of their clients’ stocks – this lax when it comes to their own IR?
‘The financial services industry does have a tendency to play its cards close to its vest,’ says Michael Flanagan, whose Pennsylvania-based independent research firm, Financial Service Analytics, tracks the 35 major public firms that make up the industry sector in the US. ‘They have to be guarded with their information for competitive reasons.’
After all, if your business was, say, selling apples, would you want other apple-sellers poking around your orchard? Flanagan explains that for many securities industry firms, one investment banking deal could be the difference between a good quarter and a bad quarter. And given the volatility of trading inventories at brokerage houses, losses or gains during a given quarter could tip an analyst’s hand.
So the securities industry has to remain discreet as it rides the market’s shockwaves. But clamming up is not the answer for everyone. For instance, last summer saw JP Morgan opening its doors to the 15 analysts covering its stock for the first time in 24 years. A roadshow for investors in Chicago, San Francisco, Philadelphia and Boston followed, as part of an effort to explain JP Morgan’s metamorphosis from staid commercial bank into a modern powerhouse – as well as to prop up a sagging stock price.
At the other end of the spectrum is Southwest Securities, a Dallas, Texas-based financial services firm with a Nasdaq market capitalization of $115 mn. With four analysts publishing research on the firm, including two that helped bring it public in 1991, corporate communications VP Jim Bowman considers Southwest lucky. And he’s looking to get luckier: he just finished mailing information packs to a database of financial services analysts in the hope of attracting more coverage.
‘It’s a tough sell for a small regional firm like Southwest to get analysts to notice us,’ says Bowman. ‘The most successful IR we’ve done is getting our CFO in one-on-one meetings with analysts. While we can never tell how profitable a roadshow is, we can absolutely see the results from analysts in terms of research published.’
Flanagan is one of the few analysts that cover Southwest. A 20-year industry veteran who cut his teeth at Lipper Analytical Services, he leaves no stone unturned in his research. ‘IR department, CFO, CEO – I seize all of the above opportunities,’ he asserts. ‘I use IR to collect data, and usually chat with the CFO once a quarter and the CEO once a year. Anybody can get the numbers, but I gauge a company’s potential for success by the quality of its management.’
This analyst’s zest for personal contact hasn’t dulled his other senses, however. When Bear Stearns released its last proxy statement, Flanagan spotted an embarrassing error in a chart showing the firm outpacing its peers over five years. In fact, Bear Stearns had underperformed the index.
Among Wall Street firms, Flanagan rates Merrill Lynch tops in terms of information provided, while Donaldson Lufkin & Jenrette and Morgan Stanley are circled for being especially accommodating to analysts.
William Hartman, director of Merrill Lynch’s three-strong investor relations department, acknowledges good fortune in having a great story to tell. ‘Some smaller companies may be struggling to get analyst coverage, while others in a turnaround situation are trying to solicit interest,’ he says. ‘At Merrill Lynch, we’re comfortable in letting the facts speak for themselves.’
Hartman’s challenge is to provide information to a varied shareholder base. With half the firm’s stock held by individual investors – half of that by employees – Merrill uses different vehicles to reach different audiences. But there’s a caveat: with a strong retail and institutional brokerage business, Merrill is committed to giving both kinds of investors equal access to information.
‘We don’t give intra-quarter guidance to institutional investors,’ says Hartman. ‘We don’t make projections or forecasts. We don’t express views on value. What we do is make sure investors understand the basics of the firm and our results and let them act accordingly.’ Looking down the road, Hartman expects to expand Merrill’s currently minimal overseas ownership, a strategy which is in line with the firm’s growing business outside the US.
And what if a Merrill client is interested in the firm’s own stock? Well, Merrill’s analysts do not cover Merrill. Moreover, Merrill brokers cannot solicit orders in Merrill stock. Of course, clients can still get any information they need from Hartman’s investor relations department. ‘We’re not arrogant or complacent,’ Hartman insists. ‘We want to make sure our story’s out there, but we’re not trying to push the stock or take advantage of our position.’
Making sure the story is out there is one thing. But what of the problem of telling your story to fund managers and analysts who work for your competitors? For example, does National Westminster Bank in the UK have any problems disclosing information to a fund manager at BZW, in the knowledge that BZW is owned by Barclays, one of its closest competitors. Not at all, says Edward Firth, head of IR at NatWest. Very strict Chinese Walls ensure that nobody abuses sensitive information.
‘There is an underlying assumption that people are all playing the same game,’ says John Aitken, a banking analyst at UBS in London. ‘Fund managers and analysts are in a privileged position and you trust the recipients of information to abide by the rules.’ He points out that all the big listed banks will regularly visit Gartmore fund management – which is owned by NatWest. But no-one expects a Gartmore fund manager to get on the phone to the head of NatWest strategy to report details disclosed by any of its competitors. In any case, it is unlikely that anything of real competitive advantage will be released in the first place.
Peter Horsman, IR manager at life assurers Legal & General, agrees. Horsman regularly finds himself talking to fund managers at competing life assurance companies but does not think this poses a problem. ‘We’re in a business where a lot of information is in the public domain anyway,’ he says. ‘There is a potential for conflict, but in practical terms it works out very well.’
Others positively welcome the opportunity to disclose information and be more transparent, believing it gives them a competitive advantage in the market over their peers. Sydney Hannah, head of capital markets marketing at Abbey National, says that its active ADR program exposes the bank to the rigours of SEC regulation making it easier for the financial community to understand where it is going. And that makes comparisons with its peers in the UK easier, too. Since going public in 1989 Abbey National has not been shy of talking to investors, running regular European and US roadshows on the equity side and winning awards for its global debt IR.
In many cases European financial institutions are among the IR leaders in their domestic markets. Being some of the largest listed companies in their respective countries obviously helps in terms of the size of their IR budgets. But there is more to it than that.
Gillian Karran, IRO at Dresdner Bank in Frankfurt, argues that in-house understanding of investors’ needs coupled with on-the-ground global operations helps keep its IR function up to scratch. She argues that there is little conflict between disclosing information and the fear of giving too much away to competitors since many of Dresdner’s institutional owners are Anglo-Saxon. As such, they are not seen as direct competitors.
She believes that Dresdner is able to be more responsive in its IR than those in other sectors because its employees are in daily contact with the financial community across the globe. For example, since acquiring Kleinwort Benson, Karran argues that it has been much easier to set up valuable meetings in the London market.
The same goes for Japan, when the IR team goes on its annual pilgrimage to the Asia-Pacific region. Colleagues in the Tokyo office help by advising on how to approach investors, providing contacts and so on. Dresdner Bank goes to the US three or four times a year to meet investors and holds regular round-table meetings and one-on-ones with the European financial community.
‘Fund managers always ask us lots and lots of questions about our own asset management business,’ says Karran, adding a plug for Dresdner’s capabilities in the field. But she thinks that is understandable: ‘After all, it’s a business they know about.’
