1. Federal Reserve Bank of Atlanta Wall Street Against the Wall April 17, 2004

2. 2 OVERVIEW  My Background  The Evolution of the Equity Analyst  The Excesses  Recommendation

3. 3 MY BACKGROUND  1980 - 83 Kemper Financial Services  1983 – 98 Smith Barney, PaineWebber, DLJ  1998 – 00 Tiger Management  2000 - Second Curve Capital

4. 4 SECOND CURVE CAPITAL  Founded in January, 2000  Hedge fund focused on the financial services industry with $400 million in capital; 60% from companies in the industry  Operate a free financial services website; bankstocks.com

5. 5 MY BACKGROUND  1990 Comments led to First Union stopping doing business with PaineWebber  1997 Comments led to First Union stopping doing business with DLJ  1998 Fired by DLJ  2001 Work with NY Attorney General on Wall Street investigation

6. 6 CONCLUSIONS  Wall Street research became a slave to investment banking interests in the 1990s  The causes were the economics of the business, personal greed and the equities bull market  The problem was SERIOUS!

7. 7 THE EVOLUTION OF THE EQUITY ANALYST  Pre – 1982; Analyst was an industry expert

8. 8 THE EVOLUTION OF THE EQUITY ANALYST  Pre – 1982; Analyst was an industry expert  1980s; Analyst had to become a marketer  Explosion in commissions due to the bull market and increased trading activities  Service clients with phone calls and action oriented recommendations  Less time to develop industry expertise

9. 9 THE EVOLUTION OF THE EQUITY ANALYST  Pre – 1982; Analyst was an industry expert  1980s; Analyst had to become a marketer  1990s; Analyst became driven by investment banking interests  Tool to get underwriting and advisory assignments  Tool to support engagements  Compensation changed to support  Even less time to develop industry expertise

10. 10 THE EXCESSES  Analysts no longer experts and the success of investment opinions no longer critical to success  Unethical behavior encouraged and rewarded  Exaggerations and outright lies  Published research opinions different from verbal opinions

11. 11 RECOMMENDATIONS  Individuals must hold each other accountable for ethical behavior  Increased disclosure  No direct compensation for investment banking transactions