Part of Goldman Sach’s defence of its ‘trading and tipping huddles‘ concerns a couple of specific instances used in the Wall Street Journal’s story:
The article cits two examples of company-specific that came out of huddles. In each case the analyst had published a 12-month price target that was above the price of the shares at the time the huddles were held. The comments made during the meetings were entirely consistent with the views expressed in previously published research.
One of the examples involves the stock of one Janus Capital and a Goldman analyst by the name of Marc Irizarry.
According to the WSJ story, in early April 2008 Irizarry’s rating on the stock was “a lacklustre neutral”. Then, at an internal April 2nd meeting, the analyst told dozens of Goldman’s traders that Janus’s share price was likely to increase, the WSJ said, citing GS company documents. And then, the Journal says:
The next day [April 3], research-department employees at Goldman called about 50 favored clients of the big securities firm with the same tip, including hedge-fund companies Citadel Investment Group and SAC Capital Advisors, the documents indicate. Readers of Mr. Irizarry’s research didn’t find out he was bullish until his written report was issued six days later [April 8], after Janus shares had jumped 5.8%.
Here’s a Bloomberg chart of Mr Irizarry’s calls on the stock. An ‘H’ is a hold and is equivalent to a neutral position.
According to Bloomberg data, that upgrade looks to have coincided with an increase in the analyst’s price target for the stock as well — from $26 as of March 10th to $32 as of April 8th (see full data below). Between March 10th and April 8th Janus’s actual share price hovered between $22 and $23.
If the Bloomberg data is accurate, Goldman’s defence — “that the analyst had published a 12-month price target that was above the price of the shares at the time the huddles were held” — appears a little weak.
It’s true Mr Irizarry’s target was about three dollars above the actual shareprice of $23 (or 13 per cent) — but his April 8th rating and price target adjustment ($32 is 28 per cent higher than the stock’s April 8th price of about $25) appears to have marked a step-change in his opinion on the stock.
Related links:
Goldman’s client cuddle huddles – FT Alphaville