Wall St. rates Blackstone’s stock a (you guessed it) “buy”

August 1, 2007

wall.jpgRewind the conflict of interest clock. New York Gov. Eliot Spitzer has his own ethics headaches lately. But the man who crusaded against tainted Wall Street research as New York’s attorney general may still have bristled at the news that several sell-side analysts launched glowing coverage on private equity giant Blackstone Group. Wall Street banks insist that they have erected impenetrable ”Chinese walls” between analysts and investment bankers, but the fact is that a host of banks who underwrote Blackstone’s recent high-profile $4 billion IPO today put “buy” ratings on the sagging stock.

Beyond the banks’ vested interest as underwriters, industry experts found Wall Street coverage worrisome because of the banks’ craving for lucrative private equity-related fees — paid by buyout shops like Blackstone — which accounted for one-fifth of total global investment banking revenue last year.

“The greatest challenge one faces as an equity analyst looking at Blackstone is the fact that they are one of the largest investment banking clients,” Sanford Bernstein analyst Brad Hintz recently told Reuters. “It isn’t going to make you very popular if you put an ‘underperform’ on them.”

So how did analysts rate the flagging stock — so far one of the year’s worst performing IPOs? Despite credit markets and tax concerns no one seems to think it’s a “sell.”

Analysts from Citi, Morgan Stanley, Merrill Lynch, Lehman, Credit Suisse, Deutsche and Banc of America all had “buy”, “outperform” or “overweight” ratings on Blackstone.

These banks, with the exception of BofA, also held coveted top positions in Blackstones IPO — which had no less than 17 underwriters after the dust settled. Of course Blackstone’s new IR head  used to run BofA’s equity research.

Wachovia was otherwise the only bank without a top underwriting position to launch coverage today. It was also the only to give a “market perform.”

But Spitzer may be happy to know that the market appears to have learned some lessons. After the string of “buy” ratings, Blackstone’s stock fell 1 percent on Wednesday. Its shares are down 23 percent since their June debut.

The following is a list of Blackstone’s IPO underwriters and their analysts’ ratings:

Morgan Stanley (“overweight”) 

Citi (“buy”)

Merrill Lynch & Co.  (“buy”)

Credit Suisse (“outperform”)  

Lehman Brothers (“overweight”)

Deutsche Bank Securities (“buy”)

ABN AMRO Rothschild

Goldman, Sachs & Co.

UBS Investment Bank

Banc of America Securities LLC   (“buy”)

JPMorgan  

Wachovia Securities (“market perform”)

Bear, Stearns & Co. Inc.

Lazard Capital Markets

Nikko

Citigroup

SEB Enskilda

Wells Fargo Securities

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