Wednesday, April 8, 2009

Conflicts of interest. A case study....

A commenter on this blog provided this link on the seekingalpha site. Very well worth reading. The basic idea can be summarized in this quote from the article...
Ah, good old circular conflicts of interest. To summarize: i) Merrill, which is probably not too happy with having loaned Kimco $707 million on its credit facility, underwrites a $720million (including a 15% overallotment) stock offering for which it gets $20 million, ii) Merrill's analyst changes the stock from a Sell to a Buy, causing it to pop 30% in one day, and allegedly allowing participants in the offering to sell their shares at a 30% gain in a day, a mindblowing annualized return, iii) Kimco uses the proceeds to repay Merrill's credit facility, cleaning out any credit risk exposure Merrill might have with respect to Kimco's underperforming properties and operations.

It makes my head hurt. I'd say that this kind of stuff gives Wall Street a bad name, but I think it's too late.