Update – May 09, 2009: Royal Bank of Canada (RBC) analyst Mike Abramsky reached out to Fortune Apple 2.0 columnist Philip Elmer-DeWitt on Friday to set the record straight and offer up a bit of a mea-culpa for his “country mile” miss on Apple’s (AAPL’s) share price target.
What’s the controversy all about? On January 18, 2009 Mike Abramsky placed a sell recommendation on Apple with a $70 price target. AAPL at that point in time was trading at $82.83. As of Friday (5/8/09), Apple (AAPL) was hovering near $130 per share … some 60 points above RBC’s original target price.
Read more > via Fortune Apple 2.0. See also iPhonAsia post > Will Mike Abramsky raise his Apple (AAPL) price target? NOTE: Mike Abramsky saw the bright “wrong way” sign and has changed course. He recently raised his Apple (AAPL) price target twice – now at $165.
iPhonAsia comment: We’d like to give another Dean Wormer Award to RBC’s Mike Abramsky, but there’s a strict limit of one per customer. What makes Abramsky so deserving of another dubious accolade? The RBC wireless analyst has raised his price target for Palm (PALM) and can’t seem to appreciate Apple’s (AAPL) ability to defy his lowered price target. No one said it better than CNBC’s Jim Goldman today. Goldman’s TechCheck is a must read > HERE
The untold story is that RBC has major investment banking business dealings with Apple’s (AAPL) arch smartphone competitor Research in Motion (RIMM). In iPhonAsia’s opinion, these conflicts have not been given sufficient play in the media. Although Fortune Apple 2.0 did point readers in the right direction.
Does RBC maintain proper separation between Investment Banking and Research?
What you are about to read (Royal Bank of Canada policy doc. below) reminds me of the Fairfield Greenwich Group’s (FGG) Statement on Due Diligence (website link pulled by FGG) … a truly impressive document outlining FGG’s exhaustive due diligence process. Too bad that FGG invested most of their clients’ money ($7.5 billion) with Bernard Madoff.
NOTE: The comments I’ve inserted into RBC’s document below are opinion. Since my post suggests that RBC analysts’ opinions are affected by conflicts and bias, let me make my own disclosure. The iPhonAsia editor is long Apple (AAPL) and has serious doubts over viability of Palm and ability of Research in Motion to gain marketshare on Apple … In other words, iPhonAsia holds the exact opposite views as RBC’s telecom analyst Mike Abramsky. Read > HERE and watch video > HERE
“The evaluation and appraisal of Research Analysts for purposes of career advancement, remuneration and promotion is structured so that non-research personnel do not exert inappropriate influence over Analysts.”
Comment: Define “inappropriate” please.
… “Analysts’ remuneration, however, may not be directly linked to specific investment banking transactions or investment banking groups, but will in part reflect the overall profitability of RBCCM as a whole, including the profitability of Global Investment Banking.”
Comment: Gee, is it possible that RBC Venture Partners’ “anchoring investment” in the $150 million BlackBerry Partners Fund (a $150 million fund focused on applications and services for the BlackBerry) could impact the profitability of RBCCM as a whole, including the profitability of Global Investment Banking????
…. “Analysts may not, however, be provided with material or confidential non-public information regarding an issuer or investment, unless the Analyst is brought “over the wall” (variously known as an “information barrier” or “Chinese wall”) in accordance with our procedures. This requires the prior consent of Research Management and a record to be made by Compliance, and potentially results in restrictions on the Analyst’s activities until the relevant non-public information has become public or stale.”
Comment: IMO … if an analyst is brought over the “Chinese Wall” (barrier between Research // Investment banking), this should be made a public record immediately following the transaction … This is the only way to determine if the analyst was abiding by industry/firm rules and ethics when it comes to disseminated research, including opinions offered on key competitors (e.g. AAPL) to the firm involved in the transaction (e.g. RIMM).
…. “We prohibit Research Analysts from soliciting or receiving any inducement in respect of their publication of research and we restrict certain communications between Research Analysts and investment banking personnel within RBCCM which might be perceived to result in inappropriate influence on Analysts’ views.”
…. “Inappropriate influences: We have implemented policies and procedures, where appropriate, to regulate communications between our Research Analysts and investment banking personnel. Equity Research Analysts have office space separate from that of investment bankers. There are also security restrictions on access to the equity Analysts’ areas by non-Analysts and to investment banking areas by Analysts.”
…. “All conversations between investment bankers and equity Research Analysts must be pre-approved by Research Management.”
Comment: Oh really! Do your analysts and bankers take separate elevators? Separate cafeterias? … Any whistleblowers up in Canada?
… “Certification on each research report: The primary Analyst responsible for a research report on a specific issuer or issuers of securities is required to certify, at the time of publication, that the views expressed in the report accurately reflect his or her personal views about the subject securities, instruments or issuers, and that no part of his or her compensation was, is or will be directly or indirectly related to the specific views or recommendations contained therein. This certification can be found on each such research report.”
Comment: Now that’s reassuring … Not.
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What are RBC’s known RIMM conflicts? >
BlackBerry Partners Fund (BBPF) is a $150 million fund focused on applications and services for the BlackBerry and other mobile platforms. The fund is anchored by capital commitments from RIM, RBC and Thomson Reuters along with participation from some of the country’s most successful mobile wireless and software entrepreneurs and corporations. BBPF will consider all stages of development and is co-managed by RBC Venture Partners and JLA Ventures.
RBC Venture Partners has $250 million under management and is investing out of a $150 million early-stage venture fund specializing in technology for the financial services industry and financial services enabled by technology. We consider investment opportunities throughout North America, often syndicating our investments with other high quality financial investors who will actively participate in the growth and development of the company. Typical initial investments range from $4 million to $6 million and we are active board participants.
RBC Venture Partners Advisory Board … and guess who sits on their board? James (Jim) Balsillie co-CEO at Research In Motion (RIM) maker of BlackBerry
Who sits on RIM’s Board? 2007-Present – Barbara Stymiest RBC Group Head, Strategy, Treasury & Corporate Services