BANKER'S BLOG: The annual analyst ranking navel-gazing orgy

By bne IntelliNews August 6, 2007

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The annual orgy of navel-gazing provided by the Thomson Extel and Institutional Investor listings of the "best" Russian investment banking research and analysts finished up a few weeks ago. At this very moment, more than a few gleeful "winners" are no doubt preparing for a sit-down with the boss to explain why being ranked by Thomson Extel means they should get a raise.

The boss should know, though, that these surveys - Thomson Extel in particular - are about as good an indicator of insightful, penetrating, money-making research as the price of a restaurant in Moscow is of the actual quality of its food: the correlation is something close to zero.

To get an idea of just how meaningless these surveys are take a look at a few of the mistakes Thompson made in identifying just who does what in Russia's investment banks.

For example, Steven Dashevsky, an oil analyst at Aton Capital, was ranked as a utilities analyst and as a strategist - and he doesn't even work there any more.

A salesperson who changed jobs well before the release of results is ranked as a telecoms analyst, his previous incarnation. A junior analyst at Uralsib is ranked in both macro and strategy, well above her boss. A decidedly male analyst at Alfa named Brady is given the sobriquet of Brandy.

A bit of a niggle, perhaps. But having any sort of credibility in this business means getting the details right. If the survey-takers can't get the basics down pat - and it's their job to cleanse the results of distracting noise and irrelevancies - it begs the question of what kind of imperfections might there have been in, say, in the vote tallying and weighting process.

Besides that, there's the absurd phenomenon - not Thomson Extel's fault, but rather a function of how marketing takes precedence over substance - of dismal analysis earning a top spot.

The number two slot in the survey firm for utilities coverage at Renaissance got yanked off his beat in October 2006, and relegated to oil and gas, because he had been permanently bearish on the Russian utilities sector - and thus permanently wrong. Utility stocks have been flying on the back of the ongoing privatisation. Does managing to get it wrong for two years on the trot merited being named the second best analyst in the sector? Everyone else must have been really bad.

I don't know this for sure, but what probably stands behind this episode is that it's tough to get in on underwritings in a sector when your analyst is panning the sector. And it would be even more difficult - even for an intellectually flexible research analyst - to explain why the sector as a whole sucks and has sucked for years, but that this particular offering is actually worth buying.

Cynics in the know would cite another reason: that Renaissance wanted to keep the prices of utilities shares depressed for as long as possible so that it could buy them up for its book and for a proprietary fund it was putting together. Having an analyst who was always talking down share prices was a convenient way to do this... but once the buying was over, he was no longer useful. But of course none of the banks in Russia would ever do anything so naughty.

The ratings are nice souvenirs to hang the wall over your desk, but the awards are no guarantee of a job. As Banker's Blog noted a few weeks ago, MDM Bank investment banking division head Igor Smolkin as of yesterday is out a job and on the street, with fixed-income head Sergey Babayan taking over his duties. This likely signals that MDM is scrapping the idea of trying to rebuild its recently departed equity team. Word is that a London-based headhunter is calling any and all research analysts in Moscow offering good money and the opportunity of a co-head of research title as an incentive to join the flailing department.

Funnily enough, Smolkin walked the bank's plank just four short days after he begged, pleaded and coerced the entire investment banking group to go on one of those endlessly weary and pointless team-building exercises, which generally serve to build nothing more than resentment toward your employer for destroying your Saturday.

In the meantime, the team that jumped MDM's ship for JP Morgan a few weeks ago started their new job last week in new offices and... no computers. Although their arrival was splashed across the domestic press for days, the JP Morgan folks in Russia, who paid top dollar for the new team, failed to order any computers and left them idle in the office for the first week. Who knows, this snafu may even help their ratings in next year's survey.


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