OPINION: Analysts' loose lips are a big irritation

Someone who was until recently CEO of a FTSE 100 company told me that the purchase or sale of just two per cent of his shares could cause a 20 per cent swing in the share price.

His company was one of life’s struggling businesses, and almost every time its results were due they would be
pre­ceded by a lurch, one way or the other, in the share price – accom­panied by wild rum­ours over an impending bid or asset sale as the boys had their fun. Inevitably, he said, there would be an analyst who would pick up and then write about the rumours – and thereby give them further credence.

This is not an isolated occurrence. A recent Fin­ancial Times article noted that Merrill Lynch’s John Inch had scored a coup by predicting that Amer­ican GE was about to do a deal, just days before it bought the aerospace division of Smiths. But it also revealed that his colleagues had declared Bank of America’s inter­est in buy­ing Bar­clays – to both parties’ surp­rise.

Similarly, JP Mor­gan Cazenove last autumn predic­ted that Resolution Life could soon be taken over. Others prophesied that Prudential was going to sell its UK business.

According to other predictions, Alliance & Leic­ester should by now have merged with Bradford & Bingley, while chemicals firm Akzo should have merged with ICI. Elsewhere, Electrocompon­ents should have cosied up to components firm Premier Farnell. And these are just the ones that spring to mind.

There is no mystery as to why these things happen. Analysts know it is hard to stand out from the crowd if their comments are confined to predictions about profitability– because every­body is working from the same data. So they look for something else to generate excitement and interest – and sometimes their imagination runs away with them.

But when that happens it is not funny for the company in question.

Another FTSE 100 CEO tells me with consid­erable irritation that one of the major challenges of his job is dampening down rumours delib­erately started by investment analysts. So, what does he do about it? ‘Just keep my head down, not talk to anyone and get on with the job,’ he replies.
anthony.hilton@haymarket.com

Anthony Hilton is City commentator on London’s Evening Standard

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