Mark Getty Snaps At Analysts

Posted on 1/11/2001 by Niel Bennett | Printable Version | Comments (0)



January 11, 2001

The following article was published in the Sunday Telegraph in London on December 17th

and is published here with permmission.

By: Neil Bennett

MARK GETTY should be pleased with the international capital markets. In the past five

years they have provided the finance that has enabled him and Jonathan Klein, his

partner, to build Getty Images into the world's largest photographic images group.

Today Getty's company bestrides the photographic world just as his grandfather's did

the oil industry.

But Getty is deeply angry. Angry with the investment banks that he feels fuelled the

technology boom to unsustainable levels and precipitated its collapse. Even angrier

with the analysts within the investment banks, who he believes have abandoned any

attempt to be objective stock pickers and have become powerful marketing tools for

their employers. And most angry at the repeated incidents of barely concealed blackmail

he and his company have been subjected to by analysts trying to win fees for their


Most company chiefs would not dare criticize the bulge bracket firms, or even their

smaller imitators, for fear of reprisals. But Getty's comments hit home hard and carry

even more weight, given his track record in business.

Getty now believes that regulators such as the Securities and Exchange Commission in

the US should act in the wake of the dotcom collapse to prevent broking analysts being

used to generate investment banking fees. "Analysts have forgotten how to analyze

business and they have forgotten how to be objective about them," he says.

"In the past the analysts were the department you never saw. They were the nerds at

school. You went to see the investment bankers and maybe the salesmen but the Chinese

walls divided them from the analysts.

"But new technology and the internet changed all that. The role of analysts in

describing these things and their application became fundamental in the markets, so

their role in the investment banks became all important. What I am critical about is

the way they have become stars."

Getty tells hair-raising tales of the pressure the analysts can put on companies to do

business with their banks. "We have had tons of conversations with investment banks

over the past few years where the analyst says: 'If you don't generate fees for us I am

going to drop my coverage of your company'.

"Coverage is an important issue for us. If the analysts stop covering us, suddenly our

liquidity would dry up and the volatility of our share price would increase, which

would make investors nervous. In the past few years we have had to carve banks into

deals when they have done absolutely no work for us merely to keep them sweet. Even if

we had an acquisition to do we would not have taken their advice anyway."

So there is intense pressure on companies, even as large and as well known as Getty

Images, to pay millions of dollars in broking and banking fees to keep the analysts on

side. Getty admits this is mainly a US phenomenon but feels it has been imported to

London by the US banks.

Once a company hires an investment bank, the research then flows from the analyst. But

Getty says the analysts' notes then bear little resemblance to a balanced outlook of a

company's fortunes. "Investors are not being told the truth about companies and they

should not rely on this analysis."

Getty believes the damage these analysts have done by ramping share prices has been

exacerbated by the star culture that grows up around some of them. Some investors

follow certain analysts like teenagers would chase pop stars. "They behave like

groupies towards the research stars they adore." As a result, the stocks they pick soar

ever upwards until the inevitable collapse.

Certainly a great deal of damage has been done to investors' wealth in the past few

months by the collapse of the technology bubble. Getty point out that Nasdaq has

halved since its peak, wiping $2,000 billion off share prices. Naturally, he

stresses, you cannot blame any one group for such a cataclysmic slump -- venture

capitalists, entrepreneurs, auditors and day traders all played their part in the

ludicrous overvaluation of technology stocks earlier in the year. But the banks have

played a large role.

The damage, he believes, has gone further than the publication of a few

over-enthusiastic research notes from partial forecasters. Until recently, the

investment banking system was geared to floating companies, and company, and then

writing them up positively to more their share prices.

"The amount of absolutely appalling companies that have come to market beggars belief.

You could have floated the Titanic on the market six months ago. Yes, some banks will

only float good companies. But others could not give two hoots if you have a business,

a business plan or any business experience."

Getty believes that now the boom has bust, steps should be taken to insure it does not

happen again. "The Chinese walls have to be rebuilt. The onus should be on the banks

and their compliance officers to ensure the analysts are kept separate from investment

banking and they should be punished for breaches.

"First of all, more attention should be brought to bear on this issue and then a

solution may come out of the woodwork. It's always a reaction to regulate when markets

go down and I think it will happen this time round. It's pointless to blame people

like day traders or entrepreneurs for the bubble because you cannot regulate them. You

should place blame where you can do something about it, where you can regulate - the

investment banks."



Having followed the US capital markets with ever increasing astonishment and

disbelief and as a former investment banker myself, I find Mark Getty's comments ironic.

From the time of their flotation, Getty and Klein have performed brilliantly as

financial engineers, capitalising on the latest investment fads to appeal to the one

constituency they really understand - Wall Street during an economic boom.

Why does he make these criticisms after the collapse?

Perhaps because the fat lady has begun to sing. They face the hard work of making their

acquisitions perform, without the smokescreen of yet another major deal to obfuscate the

underlying results of existing operations. This requires a wholly different set of

skills which, having laid waste to most of the top and middle management teams in our

industry, they will not find easy to obtain. In addition, recession looms and how many

people in their top team have managed an agency during hard times?

Our industry needs Getty to be well led and well managed, because Corbis will never be,

under Gates. Lets hope the brilliant financial engineers will now be augmented by

equally brilliant operational people.

Copyright © 2001 Niel Bennett. The above article may not be copied, reproduced, excerpted or distributed in any manner without written permission from the author. All requests should be submitted to Selling Stock at 10319 Westlake Drive, Suite 162, Bethesda, MD 20817, phone 301-461-7627, e-mail: wvz@fpcubgbf.pbz


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