Here's an excerpt from a column connecting Salomon Smith Barney to Global Crossing:
Analyze This: Wall Street Gives Investors The Finger, by Arianna Huffington.
Not surprisingly, the more investment banking dollars analysts helped generate for their firms, the bigger their paychecks grew. At Smith Barney (now Salomon Smith Barney), for instance, analysts were given an end of the year statement that showed just how much of their income was "earned" the new-fashioned way -- by blowing kisses across the Chinese Wall that theoretically, and only theoretically, separates the firm’s banking and research departments. The amount was euphemistically labeled a "helper fee." It should have been called a "help yourself fee."One analyst who most certainly did was Salomon Smith Barney’s Jack Grubman, the high-flying telecom power broker whose fence-straddling efforts netted him $20 million a year. He must have been very helpful indeed. "What used to be a conflict is now a synergy," Grubman helpfully explained before the telecom bubble he helped create burst. "Someone like me who is banking-intensive would have been looked at disdainfully by the buy side 15 years ago. Now they know I'm in the flow of what's going on."
Last week, we learned just how "in the flow" Grubman was, with reports that he acted as an unofficial -- and undisclosed to investors -- consigliere to Global Crossing Chairman Gary Winnick. Apparently, at the same time that Grubman was telling investors how bullish he was on Global, he was advising the company on everything from merger deals to major hiring decisions.
This check-to-cheek relationship paid off very handsomely for Grubman, Winnick, and Salomon, but cost investors who relied on Grubman’s opinion $57 billion when the company went belly up in January. Would a more objective analyst have maintained a "buy" rating on Global Crossing, as Grubman did, even as its stock price plummeted from a high of $61 to $1.07, at which point he finally cut his evaluation to "neutral?" Of course, back when he was Master of the Telecom Universe, Grubman had derided the very notion of objectivity, scoffing: "Objective? The other word for it is uninformed." Translation: Only fools, suckers, and outsiders play fair.
-PJ