Analysts’ reports drawn into electoral controversy
It took a few comments about the positive impact of a victory by the conservative New Democracy Party on the shares of some large state-controlled listed companies in analysts’ reports to remind everybody of a truth: Sentiment usually triumphs over reason in the final stretch of Greek political elections. This does not mean we should accept it or even tolerate it. Political parties are known to take no prisoners when it comes to getting votes to be elected as ballot day nears. In this regard, finding a theme that can be sold to the wider public, mobilize voters and solidify their political supporters’ base is always welcome. In the good old days, Turkey was the perfect fit because nobody would accuse a party, blaming part of the country’s policy mistakes on its neighbors. Fortunately, relations with Turkey have improved and it’s harder to make the same pitch any longer. PPC and OTE A couple of analysts’ reports, put out by JP Morgan and Morgan Stanley on Public Power Corporation (PPC) and OTE telecom, respectively, which projected gains for their stocks if the conservative government was re-elected produced the ammunition sought by the main opposition socialist PASOK party. In its report, JP Morgan pointed out the benefits of retaining the top management at PPC, appointed a few months ago by the Conservatives, and indications of a looser control policy over the company by a New Democracy government to justify a complete turnaround in its assessment of PPC’s future prospects and the doubling of the target price for its share. In its report on OTE, analysts at Morgan Stanley outlined different scenarios for the stock of the incumbent, pointing to gains up to 25 percent if New Democracy wins the elections and a drop up to 15 percent if PASOK wins. Trailing the conservative New Democracy party in different polls by about 1.0 to 2.5 percentage points a few days ago, PASOK apparently felt it was inappropriate for international investment banks to publish such analyst reports on major listed state-controlled companies in the midst of the campaign. Moreover, it found good reason to link the comments in the analysts’ reports with business the two international investment houses were awarded by the Greek government over the last three-and-a-half years. The fact that JP Morgan was embroiled in the scandal of the -280 million structural bond bought by state pension funds at extraordinary prices made the link easier and better understood by the general public. The impression that JP Morgan cooperated with the government to reverse the process also helped. The fact that JP Morgan ranked first with a 18.1 percent market share in the M&A league table for Greece during the previous socialist government from April 2000 to March 2004 was either ignored or downplayed. On the other hand, Morgan Stanley was not directly or indirectly involved in any disputed deal with the Greek state. The US bank ranked first in the M&A category for Greece over the April 2004-August 2007 period but it is its financial advice to private sector companies, such as TIM Hellas and Credit Agricole, which made the difference. However, the report by its analysts on OTE was the most «political» in nature it has ever made and this simplified things and made the case more convincing. Press reports that Morgan Stanley owns a 1.7 percent stake in OTE, making it the third-largest shareholder after the state and private equity fund Marfin Investment Group made the whole case even more appealing from a political point of view. The fact that Greek law allows Morgan Stanley and any other custodian to represent its hedge fund clients as well, raising its total equity stake in OTE and other listed companies well above its own, was probably ignored. Although it is easy to understand the political motives, a few points have to be clarified. First of all, all banks, Greek or foreign, are profit-maximizing organizations. They have shareholders and they try their best to increase their earnings. They are not non-profit organizations. Business above parties This means they try to do business with all sort of governments and companies. To this extent, their executives and middle management staff try to develop personal relations irrespective of their political affiliations. The most important thing is to make money and not support a political party. As a matter of fact, they try to keep a distance on disputed issues and not get involved in elections because the costs may outpace benefits for a long time to come. Of course, some of their managers may have a better understanding or even business relations with a government official belonging to a major party and in so doing may prefer that his or her party be elected to power. They hope they may get more business and therefore higher bonuses from their bosses in London or elsewhere when the time comes. This, however, does not mean they will endanger their position or their bank’s by getting involved in the Greek political game. The analysts at these banks may also have their own preferences because they have better rapport with the executives at a large Greek state company. This may make them more biased. Still, they too put their reputations on the line and risk alienating their clients if they provide them with the wrong information or poor forecasts. All in all, it is understood why political parties try to raises issues in the hope of winning more votes in the final stretch of any political campaign. It is not, however, understandable why reason should not triumph over sentiment even under these circumstances.
