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$1BN Wall St Settlement Expected Imminently

Dec 20, 2002 | FT.com US regulators were on Thursday night moving toward announcing a "global" settlement with leading investment banks that would resolve investigations into Wall Street conflicts of interest.

Regulators were organising a news conference on Friday in New York to unveil an agreement, but negotiations were continuing into the night and there was a chance they could fall apart.

There was also a possiblity that not all of the dozen investment banks involved in the talks would sign onto the agreement. Regulators have signalled that they were prepared to reach a settlement without all the banks on board.

The settlement was expected to include close to $1bn in fines and other penalties for past abuses, and a requirement that banks fund independent research for retail investors.

Regulators including Eliot Spitzer, New York attorney-general, and the Securities and Exchange Commission have been investigating whether investment banks tried to win deals by publishing overly rosy research and steering shares in "hot" initial public offerings to executives.

Citigroup and Credit Suisse First Boston, judged the most serious offenders, are expected to pay about $300m and $150m, respectively, with some of that going to investor education.

Banks including Morgan Stanley, Goldman Sachs, Deutsche Bank, UBS Warburg, JP Morgan Chase, Lehman Brothers, Bear Stearns, US Bancorp Piper Jaffray and Thomas Weisel Partners had originally been told to expect fines of $50m to $75m.

As of Thursday night, Piper Jaffray and Thomas Weisel had not signed onto the agreement. They are smaller than the other banks and have complained that a fine could cripple them.

Participants in the talks said penalties for other banks in the second tier would probably be at the lower end of the range possibly $50m plus $5m for investor education but that changes could be made overnight.

Merrill Lynch has agreed in May to pay $100m as part of an earlier agreement with Mr Spitzer, but was still be counting on to agree to the reforms in the settlement.

The basic shape of the reforms have been clear for weeks, but the talks have been stalled recently by the difficulty of reaching agreement with the banks paying smaller fines.

Participants in the talks said many of these banks have been concerned not only about the absolute levels of their fines, but how they stack up with the competition.

Another sticking point has been the exact language of a settlement. Such agreements usually include a mention of laws that might have been broken, and it was understood that some banks were sparring with regulators over such details.

Among the other reforms in the agreement will be provisions on "touch points," further separating research analysts from investment bankers.

The practice of "spinning" allocating IPO shares to executives in hopes of winning investment banking assignments will likey be banned.

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