For Immediate Release
Chicago, IL - May 3, 2012 - Zacks.com announces the list of
stocks featured in the Analyst Blog. Every day the Zacks Equity
Research analysts discuss the latest news and events impacting
stocks and the financial markets. Stocks recently featured in the
blog include
Citigroup Inc.
(
C
),
Morgan Stanley
(
MS
),
UBS AG
(
UBS
),
Wells Fargo & Company
(
WFC
) and
Accenture plc
(
ACN
).
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free Profit from the Pros newsletter:
http://at.zacks.com/?id=5513
Here are highlights from Wednesday's Analyst
Blog:
ETF Sales Cost Firms Millions
Sale of Exchange Traded Funds (ETFs) has cost major Wall Street
firms millions in fines. The firms -
Citigroup Inc.
(
C
),
Morgan Stanley
(
MS
),
UBS AG
(
UBS
) and
Wells Fargo & Company
(
WFC
) - have been penalized by the Financial Industry Regulatory
Authority (FINRA) over the sale of leveraged and inverse
exchange-traded funds.
They must pay a total of $9.1 million, of which $7.3 million is
the penalty amount, and the remaining $1.8 million will be
reimbursed to the customers who bought the ETFs.
The Allegations
According to FINRA, the brokerage units of these firms -
Citigroup Global Markets Inc, Morgan Stanley & Co. LLC, UBS
Financial Services and Wells Fargo Advisors LLC - have been accused
of selling the leveraged and inverse exchange-traded funds in an
improper fashion between 2008 and 2009. FINRA claimed that these
firms lacked a sufficient supervision mechanism for this variety of
ETF sales.
Sufficient due diligence were not performed on the risks and
characteristics of the ETFs. Therefore, there was no reasonable
basis to advise the ETFs to retail customers. Moreover, it was
found that some of the customers with a conservative risk appetite
and investment targets were recommended this type of ETFs by the
firms' representatives.
The charges were neither admitted nor denied by the firms. They
consented to the FINRA findings.
Leveraged and Inverse ETFs
ETFs are a type of security that trades on stock exchanges like
stocks. They mostly track an index or benchmark and hold assets
such as stocks, commodities, or bonds. Leveraged ETFs particularly
make use of the financial derivatives and debt to magnify the
returns of an index or the benchmark, while Inverse ETFs seek to
return the opposite of the index or benchmark they track.
Notably, complexity and added risks are present in leveraged and
inverse ETFs which make them unsuitable for holding them long. As a
result of risks related to daily reset, leverage and compounding,
if these instruments are held for long periods and specifically in
volatile markets, then their performances substantially vary from
the underlying index or benchmark performance. It was found that
the customers held leveraged and inverse ETFs at such times.
Penalties in Detail
Among the four firms, Wells Fargo's penalty is the highest. The
company needs to pay a $2.1 million fine and $641,489 in
restitution. Next is Citigroup, which needs to pay a $2 million
fine and $146,431 in reimbursement. Morgan Stanley has to pay a
$1.75 million fine and $604,584 in restitution while UBS will pay
$1.5 million as fine and $431,488 as reimbursement.
Conclusion
Post financial crisis, financial firms have witnessed increased
scrutiny by regulators, and penalization for misguiding investors
either through suppression of information regarding the risky
profile of the instruments sold or though any other fraudulent
activities. We believe that such efforts on part of the regulators
are in the best interest of the investors.
As a matter of fact, FINRA had warned about the sale of these
instruments earlier and the firms have accordingly implemented
policies, procedures and training for better supervision and to
satisfy regulatory requirements. We believe such efforts will
instill investors' confidence in the market for such
instruments.
Accenture Bolsters Saudi Connection
Accenture plc
(
ACN
) will now act as a management consultant to the Saudi Electricity
Company ("SEC"). Financial terms of the deal were not
disclosed.
Generally, the energy sector in most Middle East countries is
state-owned. But the desire to attract foreign direct investment is
now resulting in joint ownership between public and private
companies. Saudi Arabia's electricity market is growing
rapidly.
The country started its liberalization procedure roughly two
decades ago and formed SEC, which was majority-owned by the local
government. But in 2007, SEC sold out some shares to independent
power producers. SEC is now planning to further liquidate its stake
to roughly 20.0%.
Accenture will technically support SEC's restructuring
procedure. For this, the consulting and outsourcing giant will
develop and implement a strategic project management program to
support SEC in identifying and managing various projects,
redesigning the inter-company operating procedures, monitoring
performances of the subsidiaries and encouraging unified
operations.
We see this contract as a key long-term revenue contributor from
this region, given SEC's broad exposure. Accenture formed a joint
venture with Saudi Arabia-based Faisaliah Business & Technology
Company ("FBTC") in June 2011, in an attempt to explore
opportunities in the energy, utilities and petrochemical sectors in
the Middle East.
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ACCENTURE PLC (ACN): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
UBS AG (UBS): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis
Report
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