- The Washington Times - Friday, February 1, 2002

From combined dispatches

Companies yesterday sought to distance themselves from business practices associated with the Enron collapse, as the House Financial Services Committee moved to force stock analysts to disclose conflicts of interest under new legislative standards.

•Cendant Corp., owner of Avis rental car and franchiser of Days Inn hotels and Coldwell Banker residential brokerages, put information on its Web site about its investments in affiliated entities in response to heightened investor concern about how companies account for off-balance-sheet partnerships.

•PricewaterhouseCoopers, the world's largest accounting firm, announced plans to spin off its consulting arm as concerns about the independence of auditors mounted in the wake of the Enron scandal.

•Deloitte & Touche LLP Chief Executive Officer James Copeland said sales of consulting services by the second-biggest accounting firm have slowed amid growing concerns over auditing houses' potential conflicts of interest.

In Congress, Rep. Richard H. Baker, Louisiana Republican, said stock analysts' conflicts will have "to be appropriately disclosed so individuals can make judgments about the efficacy of the claims made." Mr. Baker is chairman of the Financial Services capital markets subcommittee.

The committee benchmarks will address analysts' ownership of stock they recommend and their firms' investment-banking ties to companies reviewed by the analysts, said Mr. Baker's spokesman, Michael DiResto. These standards, which won't be voted on by Congress, will be monitored by the Securities and Exchange Commission, Mr. Baker told reporters.

Brokerage analysts' performances have been criticized by regulators and Congress because so many persisted in rosy forecasts about stocks even after the market started its lengthy decline almost two years ago. Many analysts kept "strong buy" ratings on Enron Corp. until the company disclosed the extent of its troubles in November.

Debate has centered on whether analysts' opinions were skewed by financial self-interest rather than the interests of clients.

The National Association of Securities Dealers, a brokers' self-policing group, in October endorsed a proposal to make analysts disclose these conflicts.

This plan, which needs SEC approval, is being modified at the federal agency's request. SEC Chairman Harvey Pitt has said he favors letting the NASD and New York Stock Exchange, not the government, make rules governing analyst conflicts.

During the boom of initial public offerings in the late 1990s, brokerages seeking to underwrite IPOs of technology firms sometimes discouraged their analysts from criticizing these companies. Since its record high in March 2000, the Nasdaq Composite Index has fallen 62 percent.

In future years, Mr. Baker said, Congress will consider legislation if the SEC finds that analysts are falling short of the legislative standards.

The committee's goal is to have "a person who makes a $100 investment on the Internet feel confident that the investment is being made with straightforward, properly balanced information," he said.

House Financial Services Committee Chairman Michael G. Oxley, Ohio Republican, couldn't be reached for comment. The panel will announce the benchmarks as early as the week after next, Mr. Baker said.

Congress has debated whether to go beyond requiring analyst disclosure, such as restricting analysts from owning stocks they review. Merrill Lynch & Co., Credit Suisse First Boston and other firms have taken that step voluntarily.

The Securities Industry Association, a brokerage trade group, last year also recommended "best practice" standards for analysts to follow. They have been criticized by Mr. Baker and other lawmakers for being too conservative.

Defunct online grocer Webvan Group Inc. had no analysts' ratings lower than "buy" as its shares fell 99.8 percent from a high of $34 to 6 cents a share the day before Webvan went out of business in July.

Meanwhile, Cendant put information on its Web site (www.cendant.com) about its investments in affiliated entities after shares of the company fell 13 percent Monday through Wednesday as investors sold stock in companies they believed didn't provide enough information about partnerships.

"In an effort to provide clarity and eliminate further misunderstanding, we have compiled what we believe to be all the relevant information in one conveniently accessed location on the company's Web site," Henry Silverman, chairman, president and chief executive, said in a faxed statement.

Cendant shares rose $1.43 to $17.48 on the New York Stock Exchange.

The company has a stake in seven ventures ranging from an entity that buys residential property brokerages to a time-share resort developer that it doesn't consolidate on its financial statements. The ventures are: NRT Inc., Trip Network, FFD Development Co., Trilegiant Corp., Tax Services of America, Homestore.com Inc. and Entertainment Publications.

Plans for PricewaterhouseCoopers' spinoff took root two years ago when the firm decided to break up its business units to allow each one to grow independently. Last year, the company sold off a valuation consulting business and a human resource outsourcing business.

But executives decided to speed up plans for the stock offering for PwC Consulting after disclosures that Enron's auditor, Arthur Andersen LLP, acknowledged destroying documents and e-mail messages that were sought by federal and congressional investigators.

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