They really can’t help it, can they? Like alcoholics in a liquor store, the investment banks cannot resist an illicit swig whenever they think nobody is looking. That is the conclusion from the fines imposed on 10 US investment banks last week for breaking rules designed to manage conflicts of interest in initial public offerings.
The shock is that the event in question occurred in 2010, a mere seven years after rules were passed to clean up the IPO market in the wake of the dotcom crash. Back then Eliot Spitzer, who was at the time New York State attorney-general, had led an investigation that showed how investment banks’ analysts had been puffing up the value of new issues. It was a scandal that blew Wall Street’s claim to be a trusted adviser out of the water. Ten investment banks paid $1.4bn to settle the matter and signed up to new rules restricting analysts’ involvement in IPOs.
This seemed to have cleaned up the mess. After the settlement, lawyers attended banks’ pitch meetings to police good behaviour; and investment bankers were no longer allowed to influence research. Analysts working on deal-related research complained that they could not go to the lavatory except in the presence of a compliance officer; and senior management assured anyone who asked that the IPO market had been reformed.