Sallie Krawcheck interview, July 5, 2002
|
On the July 5, 2002 broadcast of Wall $treet Week with FORTUNE, co-hosts Karen Gibbs and Geoff Colvin sat down with Sallie Krawcheck, CEO of Sanford C. Bernstein, to talk about the role of research analysts in a world where many of them now are objects of suspicion and mistrust. A transcript of their conversation:
COLVIN: You might be wondering if you can ever trust a Wall Street analyst again, and certainly it won't be easy. But many people don't realize that a few Wall Street firms have avoided the conflicts of interest that make so much stock research suspect, and one of the very best of these firms is Sanford C. Bernstein, run by CEO Sallie Krawcheck, who joins us now.
Research plus asset management are all Bernstein does and all it has ever done no investment banking, nothing that might tempt its analysts to pull their punches. That's why some 5,000 institutional clients pay millions to get Bernstein's advice every month. Sallie, glad you're here.
KRAWCHECK: Great to be here. Thank you.
 COLVIN: I want to start by asking you about what happened on Friday, day after a holiday, short session. Normally that kind of a day is a snore. Instead the Dow rises 325 points. What should we make of it?
KRAWCHECK: Well, I feel like I'm supposed to tell you it's short covering or this is a relief rally or something like that.
But I think what we really have to say here is it's, you know it's always tough to try to read too much into any one day's trading, and I would say particularly a summer Friday, a shortened Friday, July the 5th. All the bosses were at the beach. The weather has been beautiful up and down the Eastern Seaboard. Nobody was at work today. So I wouldn't read too much into it at all.
COLVIN: So this was the kids having some fun?
KRAWCHECK: The bosses are away and the kids are buying, and the bosses who are selling will be back on, you know, could well be back next week.
COLVIN: Gotcha.
GIBBS: Well, Sallie, Geoff and I have been tossing this question back and forth for a couple of days here, maybe even a couple of weeks. With all the attention being paid to analysts, do they really play a viable role? Why should we have them?
KRAWCHECK: Well, I think there is very much a role for analysts. There is more and more information and data coming at the investor today, both the institutional investor and the retail investor. But, you know, because of that there is a real premium now that's being given to analysts who can pull the information together, who can give a sense of what all of it means, you know, that it's not just so many numbers coming at the investor or so many reports coming at the investor, but how to really place this stuff into context and give the investor a feeling for, you know, where the market is going. I mean actually you can argue, you know, we've seen what in the bubble, by having too many people with their eye in the wrong places and not doing the type of research that we need, where that can lead, which is a pretty sorry place for all of us.
GIBBS: What do you think about all the reforms being bandied about?
 KRAWCHECK: Well, you know, I am of the view that sunlight is the best disinfectant. So bringing in more sunlight on to what the analysts are doing and what the potential conflicts are is a very good thing. I think like everything, as the pendulum swings it tends to swing too far one way and too far the other way. So some of these reforms that are coming in are probably going too far in the other direction. And I worry about ones particularly like these, you know, these things we'll have to do where the analysts will have these stock charts and the analysts will notate where they upgraded and downgraded a stock. And you can see how instead of analysts looking then at stocks as investments, they begin to look at them as trades to try to become the best stock picker in any given week. So some of these are going to far. They are costly. But, you know, on the whole this is change that's well needed.
COLVIN: Well, we know what happens when, or what did happen and can happen when one of these institutions that does have the potential conflicts makes a rating or a recommendation that a company doesn't like, right? The CEO calls up and says, okay, forget about getting our next piece of underwriting business. Now you've said I know that CEOs call you up angrily
when Sanford C. Bernstein issues a sell recommendation, but you don't have these conflicts. What do they say to you?
KRAWCHECK: Well, it's the same thing. You know, you do have CEOs who call you up and scream at you. Rather than saying you're not going to get our business, they generally tell me how stupid our analysts are. And the more they tell you now stupid they are, the more you say, "Hmm, you know, maybe we're on to something."
But make no mistake, the pressures are there for analysts who don't have these, you know, conflicts now. It comes not only from companies shutting them down or saying they're stupid, but it also comes from investors themselves. I've had many more than one phone call, you know, when our analysts have put shorts on stocks, for example, who've said, you know, I don't like this call. You know, I own this stock and this makes me angry. So there are conflicts not conflicts. Analysts get pressure from all sorts of different sides.
COLVIN: Well, exactly. I mean ironically, in a way the tough times for Sanford Bernstein were the great times for the markets, when some of your analysts were saying, quite properly, these issues are way out of line, way overpriced.
KRAWCHECK: Tell me about it. It was tough for us. It was tough for us because we were negative at a time when everybody was in sort of a euphoric mood, and it was also tough because at that time, you know, while research really never goes out of style, independent research never goes out of style, it's sometimes more in or more out. And when the market goes up every day, people are a little bit less concerned about, hey, what's the five-year plan, and that really is our bread and butter.
GIBBS: Back to separating some of these ideas here, particularly the institutional research versus retail research. Will that put the little investor at a disadvantage particularly to big money?
 KRAWCHECK: Well, I think these changes are really being made for the retail investor. In many ways the institutional investor doesn't need these protections. You know, they, as I talk to our clients, and I'm talking to them all the time, none of them are saying "You're kidding, my goodness! You know, these analysts were in pitches on deals?!" They all know this.
It's the retail investor who didn't know necessarily what was going on. I read this in the paper, and people are saying, "Gee, the retail investor, did they really think this stuff could go on, that these stocks could go up forever?" But, you know, I think we need to give them the benefit of the doubt, that as their professional advisers, the analysts and the financial advisers were advising them that, gee, this can continue. You know, they were not getting the best advice in this situation.
COLVIN: Sallie, this is really valuable. We appreciate your being here. Thanks so much.
KRAWCHECK: My pleasure. Thank you for having me.
|
