November 24, 2002	Sunday	Ramazan 18, 1423

NEW YORK, Nov 23: When Merrill Lynch & Co. agreed in May to pay $100 million to settle charges its analysts misled investors, critics dismissed the size of the fine as being a pittance of the firm’s tech-bubble profits.

Now, other top banks are being informed by regulators of the fines they will face for similar bad behavior. And even though bigger figures are being reported for some of the banks, there is likewise not much concern that the fines will cause permanent financial damage.

All you have left is trophy numbers for Eliot Spitzer, said Michael Holland, chairman of investment firm Holland & Co. The fines simply have to be large enough to say that Eliot Spitzer has complete victory.

The reputation hits have already been absorbed, he said.

Federal and state regulators, including New York Attorney General Spitzer, are reportedly meeting on Friday and next week with lawyers from top firms. At the meetings, the regulators and bank counsel are discussing how much individual firms would have to pay to resolve probes into whether their analysts misled investors to help reel in banking deals.

Initial proposed figures have been reported to be as high as $500 million for Citigroup Inc. and up to $200 million for Credit Suisse First Boston, a unit of Swiss-based Credit Suisse Group.

The regulators, whose probes into Wall Street were sparked by Spitzer’s investigations, are also devising new restrictions for how Wall Street would issue stock research, sources said. The structures include a mechanism for providing retail investors with access to independent research, and a further separation of research from banking, sources have said.

Yet, while business conditions have grown steadily worse this year for investment banks, leading to multiple rounds of job cuts, the potential fines are unlikely to cripple the firms, given the fines’ one-time nature, and the size of the top banks’ overall operations.

In its most recent quarter, Citigroup reported $3.92 billion of net income, despite relentless bad publicity over some of its analysts’ alleged willingness to curry favor with prospective banking clients.

For tax reasons, the banks are likely to want to avoid characterizing their payments as “fines,” which are not deductible. Assuming that they succeed, a tax-deductible Citigroup payment would cut earnings.

Assuming that the Citigroup fine proves to be tax deductible, it would cut earnings by about 6 cents per share, Hughes estimated.

For Credit Suisse, the cut to earnings would be about 11 cents a share, not much considering that the bank’s American depositary receipts trade for about $22 or $23, he said. Credit Suisse, Switzerland’s No. 2 bank, reported a loss of $1.44 billion in its most recent quarter.

For Merrill, the analyst fine of $100 million was like getting one extra credit card bill, Hughes said. Credit Suisse Group is a larger overall entity than Merrill and therefore that hit isn’t going to be as bad.

Merrill, which has yet to pay the fine, earned $3.78 billion in 2000 and $573 million in 2001, an especially tough year for the firm because of the Sept. 11 attacks and firm-wide layoffs.—Reuters