U.S. News

Spitzer Defends Wall Street Legacy

Tracy Alloway

Eliot Spitzer, former New York attorney-general, defended the changes in Wall Street research practices that were brought as part of his 2003 “global settlement” with leading banks, after Goldman Sachs said it had closed its independent analysis venture.

Elliot Spitzer
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The funding of independent research was a key plank of the so-called “global settlement” Mr. Spitzer brokered in 2003, in an effort to address conflicts of interest within the big banks. In addition to setting up “Chinese walls,” which separated banks’ underwriting and research departments, the 10 banks involved in the settlement committed $460 million to providing independent research to their clients for five years.

But just a handful of years after that formal funding requirement ended, banks are choosing to shutter their independent research offerings. That has prompted questions over whether the settlement has succeeded in boosting the popularity of independent research among investors on Wall Street.

Last week it emerged that Goldman Sachs had brought the curtains down on its Hudson Street platform, one of the most high-profile independent research projects started by an investment bank involved in the settlement. Other settlement banks, such as UBS and Bank of America Merrill Lynch , are said to have closed or scaled down their own independent analysis projects.

Mr. Spitzer was quick to defend the legacy of the global settlement in an interview with the Financial Times. “I think we accomplished something,” Mr. Spitzer said. “There are a lot of independent research firms out there, some doing well and others not. Goldman has other business models and other priorities.”

Goldman’s Hudson Street started furnishing clients with third party analysis in 2007, after making minority investments in a number of independent research firms. At its height, the platform had agreements with 11 providers, according to Integrity Research, which matches asset managers with research providers.

But the bank is now in the process of selling its last one or two stakes in third party research firms, including TrimTabs, after opting to close the business.

The closure of Hudson Street, first reported by Reuters, is “not a surprise,” said a former Goldman executive close to the project. Another source within Goldman said that customers had simply been unwilling to pay for the product—an issue that also applies to big banks’ own research offerings, which are often loss-leaders for other banking business.

“If it doesn’t work after a decade [some banks] will exit,” as providers of independent research, Mr. Spitzer said. “We accomplished what we wanted, the public is much more aware of these conflicts.”

He added: “At the time, it was the most fundamental restructuring of Wall Street that had taken place in decades. The problem was that the research that was proffered to the public as independent and unbiased was in fact biased.”