Countrywide, VTB, and the Trouble with Equity Research

(Editor’s note: I’m not sure if most readers of this site know it, but long ago I was an equity research analyst at a few brokerage firms, including TD Waterhouse, HSBC Securities, etc. That will help explain why I still follow how the home analyst team is doing– and lately, it’s not great.)

First, we have the story this morning that a Merrill Lynch analyst dropped Countrywide Financial to a “sell” rating. With the stock off 42% this year, and down 33% in the last month, that could seem … a little slow. Skeptics will say, where was he in February? Downgrading now might make some sort of near-term bottom for the troubled mortgage company.

More sanguine sorts might point out that four brave analysts already have Countrywide at Sell, which is true. But then again, that’s the same number as last month, and the same number as three months ago — out of a total of 15 analysts covering the stock. Not exactly a resounding vote of non-confidence for a plummeting stock.

In a post-banking world why are analysts still so screwy about Sells? Not because analysts are dumb, because they aren’t. Truly. But because analysts hate being first to downgrade, and hate being last. Being first is just a recipe for irritating portfolio manager clients who you likely got into the stock; being last makes you look clueless, with the stock immediately flying higher. And if you’re not first, you’re always petrified you’re going to be last. Public stock flogging is just not rewarding.


Next up we have the story today of Goldman Sachs and VTB Group. Goldman brought the Russian bank public three months ago, after much work setting up a Russian i-banking presence, and now Goldman’s London-based banking analyst has dropped a “sell” rating on VTB’s stock, saying he sees better values elsewhere.

Fair enough, one might think, but, according to a Russian newspaper, that move led Goldman CEO Lloyd Blankfein to apologize to VTB Group CEO Andrei Kostin for the “sell” recommendation. And not only did he apologize, Blankfein apparently told Kostin that he didn’t share his analyst’s “point of view”. Nice. Thanks for the support, Lloyd.

Welcome to the world of being an analyst, where being early is not rewarded, being late is not rewarded, and sometimes saying anything at all just has your boss publicly kick you upside the head.


More here on VTB from Bloomberg, and you can see Countrywide’s analyst ratings here. And Barry argues here that credit analysts are the new equity analysts, circa 2000.


  1. Rafael Montoya says:

    Because of these same reasons the profile you hire for an equity analyst position is: around 27 years of age, MSc/MBA graduate or similar, a previous life as an Engineer helps, affinity to extreme sports but at the same time not living an active social life, workaholic lifestyle a plus and it doesn´t matter if you are single or not, soon you will be living again without a significant other.
    I have a friend who runs an equity analyst group which also characterizes on all of them being single moms and aged 28 to 35 years.