ANALYSE THIS: This man's desk may be a sight, but he's a 21st-century power-wielder with a salary to make you weep with envy Lindsay Vincent takes a look inside the hidden world of City analysts.

ANALYSE THIS: This man's desk may be a sight, but he's a 21st-century power-wielder with a salary to make you weep with envy Lindsay Vincent takes a look inside the hidden world of City analysts. - Society has always held a special place for those who bel

by
Last Updated: 31 Aug 2010

Society has always held a special place for those who believe they can tell us what waits around the corner. The art of prediction is a pearl of price. In ancient Greece, they flocked in reverence to the Oracle at Delphi; Macbeth went to his three witches; and, more recently, the Duchess of York took time off from Weight Watchers and Budgie the Helicopter to come into town from her Surrey ranch for a session with Madame Vasso and her tarot cards.

These days, however, some of the most influential soothsayers - in terms of the impact they have on all our lives - are the City analysts. Their influence in the economy is enormous, reflected by the vast amounts of money that many of them earn. The analysts are the Backroom Masters of the Universe, with an emphasis on brain and deep study rather than sales brawn. All quoted companies have to do business with them and many go much further. Corporate hospitality tents and boxes from Aintree to Twickenham and Lords will almost inevitably include an analyst sipping vintage champagne. Their opinions can determine the outcome of takeover battles, the reputation of Britain's CEOs and even the value of our pensions.

But who are these strange stars who remain invisible in the night sky of the average manager? How have they reached this position of supreme power? Someone who knows their world well is David Howell of recruitment consultancy EM. He placed more than 60 analysts in investment banks and brokerages last year. According to his firm, a typical package last year for a 28-year-old media analyst with three years' experience was pounds 105,000 basic, plus a pounds 100,000 guaranteed bonus.

Senior analysts sign on for a basic pounds 500,000 a year and the top analysts can make several million.

Analysis is largely a young person's game and many move on to second careers in investor relations or corporate finance when the fuse runs out. Thirteen-hour days under intense pressure to perform make burn-out common. According to one head-hunter, a senior analyst like Nick Bubb (see accompanying life box), in his mid-40s and with a lengthy track record in the City, is a relative rarity. He has been covering the retail sector since before Next was a twinkle in George Davis's eye.

'These people need to be intensely academic from the top stream of the very best universities,' says Howell. 'An Oxbridge first in maths would be typical, followed by an accounting qualification. Pure boffins are bad news. These people need personality and charisma, because they need to sell to the market on a day-to-day basis.

'Money is not necessarily everything,' he adds. 'What they want is to be surrounded by excellence. After all, when you're on a quarter of a million pounds per year, pounds 20,000 or pounds 30,000 either way falls into insignificance.'

Phil Clarke of Goldman Sachs is 27 and a classic of the breed in the early stages of development. He is dry, smart and pretty serious, smiling only occasionally. The LSE post-graduate cycles in from Maida Vale each morning and does triathlons in what time he has spare. Clarke studies the dot.com world, with a sideline in retail. He's recently been to Italy to introduce himself to the Benettons, in whom he is developing a business research interest.

The role of analysts in the dot.com debacle has led to much criticism lately. Under the headline 'How did so many get it so wrong?', the New York Times recently ran a long, withering article grimly dissecting some of the worst excesses committed by Wall Street analysts over the past few years. They were denounced as anything from 'cheerleaders' to 'race track touts', and the piece concluded: 'Although brokerage firm stock gurus are still called analysts, their day-to-day pursuits involve much less analysis and more salesmanship than ever before.'

The argument against modern analysis is, in a nutshell, similar to that against Sigmund Freud's analytic theories - it is not exactly scientific and may wilfully mislead. It is conducted by organisations - normally banks - that have their own axes to grind as they investigate the performance and well-being of publicly listed companies; that is, they wish to do lucrative business with them in, for example, the mergers and acquisitions field or in the capital markets. On this side of the Atlantic, the Observer recently published a report headlined 'Analysts face bias inquiry'. Citing unnamed senior Whitehall officials, the story suggested that analysts were going to be subjected to some government heat as part of a wider scrutiny of institutional investment.

Clarke rejects the accusation of bias and stands by his own investment judgments. 'If you're viewed as a banking or corporate stooge people just won't listen to you,' he says. 'You'll never develop a reputation It is a lose-lose situation.'

It certainly was lose-lose for Terry Smith, a high-profile analyst who worked for BZW and, during the heady 1980s, told his clients to sell shares in Barclays - his employer. Smith lost his job and now runs his own organisation, where he has developed new valuation techniques. Similarly, Derek Terrington, former media analyst with UBS before the SG Warburg merger, was told to clear his desk after he famously circulated his forthright views about Maxwell Communications. It was entitled 'CRAP, or Can't Recommend A Purchase'.

UBS was a money-lender to Maxwell, and Terrington paid the price for his prescient judgment. (A forthcoming DTI report, incidentally, strongly criticises investment banks and their analysts for their role in the Maxwell affair 10 years after the crooked tycoon's death.)

The courage to stand out from the crowd is a rare commodity. In the fairly staid world of analysts, however, Lorna Tilbian is a bit different. She is an engaging and lively individual - appreciated by hacks for her sparky quotes - who makes most of her fellow analytical scribblers look as dry as dust. (Responding to an ill-advised move into the restaurant business by Capital Radio, she once observed that 'a fool and his money are easily parted'. And she was proved right when it became obvious that Capital was better at flipping vinyl than burgers.)

An executive director and head of media research at WestLB Panmure, a smaller house, Tilbian is 40-ish, divorced and lives in a desirable four-storey house in one of the best parts of Kensington (she has a Maserati in storage after its soft top was slashed for the second time). She is well connected and knows everyone who matters in the media world. And they have to know her. She's highly 'rated' - her opinions matter.

Tilbian still clearly loves what she does for a living, despite having to be at her desk in New Broad Street without fail at 7am every morning. This often means having to get up at 5.30. 'Listen, if there's a profit warning and I'm not there the salesmen will have me. I'd be skinned alive.'

She's often not done until 9pm, attending functions, meetings and generally keeping an eye on her media manor. In the team over which she presides, she has a brace of double-firsts from Oxford. She travels to Dusseldorf to keep an eye on other members of her team and to Singapore to advise the government on where to invest its state pensions funds in media stocks. When asked what qualities you need to do her sort of job, she replies that you need to be part-narrator, part-journalist, part-accountant and part-salesman: 'You cannot be just a nerd who understands economics or a spiv who only understands street trading.'

She adds: 'After 17 years I'm still like a kid in a sweet shop. I get paid a ridiculous amount of money for what I do, but I could probably double what I'm earning if I went to a bigger house.' She means, of course, financial institution rather than a six-bedroomed pile in Notting Hill. 'I don't leave because in exchange they want to take your life away. You have to work weekends and sleep with a mobile phone under your pillow. Well, forget it. I know someone who does this and his wife has moved into a different bedroom. Money doesn't buy you health, happiness, peace of mind or, for that matter, love.'

So, with a job like hers, what about personal relationships? Does she still want children? 'Well, you don't regret what you don't have,' she replies after a slight hesitation. 'I don't find it difficult to see the downside of children.'

She admits to having some 'ardent' male admirers at the moment, although she concedes that many men are scared off, finding her intimidatingly forthright. Her family are Armenian from Cyprus and Tilbian lost her father when relatively young; she is now the head of her clan, ruling it by remote control from London.

Not all those involved in analysis are as happy with their lot as Tilbian.

A former analyst says he and his colleagues were constantly committing 'near perjury' in order to satisfy their superiors (he insists on anonymity, as he still works in the City). 'It's all about generating business. That's why analysts exist. We were meant to impress a company's finance director with our research. The bank's next move was to try and generate corporate finance business on the back of it.

'With the best will in the world, there is no such thing as a Chinese wall. We knew the corporate finance side was up to something when, suddenly, all our files would disappear in their direction. If there was a placement, a rights issue or some other activity in the pipeline, woe betide the analyst who regarded the stock as a sell.

Everyone knows how it is. I was once in the lift with my boss and told him I was putting a sell notice on a particular company. By the time we reached the ground floor, the stock had become an add. By the evening it was a buy.'

The stress of all this can get to people. 'Salaries are inflated, but the trade-off is a very ruthless existence - a heartless environment,' says our anonymous informer. 'Most live in some style in London and take exotic holidays. But it is only a veneer, this mateyness and apparent well-being. I know many people who have buckled under the pressure and their lives are in tatters - private and professional. If someone is given the push, that is that. Nobody rallies round to help. The working environment is tense and full of aggression.'

Howell of EM agrees: 'I had a call from a guy the other day who'd been out of the business for five years. He said he'd been in touch with two old colleagues, one of whom was in an asylum and the other was an alcoholic. There's no doubt the stress can be very harmful to your life and that of your family.'

To be fair to the banks, many are becoming aware of the detrimental effects that their demands can have on staff, but others have a long way to go.

The offer of a more human approach is too late for Simon Nixon, who used to work at Flemings but left, very disillusioned, after six years. 'The City is a totally self-interested deal machine,' he says. 'And analysts are at the forefront of it. I just felt in the end that this deal culture meant unacceptable pressure on companies to do deals that added no value and ultimately did very few people any good, except the banks themselves.' (Nixon is now a journalist and so has had to put his order for a Porsche 911 Turbo on hold.)

What do the companies that come under the scrutiny of the analyst community think of their attentions? Sir Stanley Kalms, boss of Dixons and the most hardened of old pros, has learned to tolerate and even learn from them 'They are part of the system and you have to learn to live with them. We are always trying to pick up what people are thinking and saying about us, and this we pick up from analysts. They are a vital part of the chain of relationships.'

Sir Clive Thompson, former CBI president and CEO of Rentokil Initial, is less sanguine. He seems to agree with Nigel Lawson's desription of them as 'teenage scribblers' since his company's stock, once one of the highest rated in the realm, took a hammering last year.

'I find that many have difficulty in concluding whether something is overvalued or undervalued,' he says with care. 'Rather than looking at the technical underlying value of a company, many analysts alight upon the momentum stocks, which means buying stocks just because others are buying them. The role of analysts has changed quite a lot over the past 15 years. Back then they were allowed to take a more academic view of a business. Now, their firms are keen to do volume.'

Does this mean analysts are not as independent as they once were? Thompson responds: 'The question you have to ask yourself is: how are they rewarded? The short answer is that they are part of every investment bank's bonus pool and are rewarded by volume. If their notes do not generate commissions, it's goodnight.'

This explains, in the view of Alex Sandberg, founder of City PR firm College Hill Associates, why people no longer regard analysts as independent. 'And they aren't. Nowadays everybody is pitching for everybody else's business. It used not to be like that; it used to be: 'George's company? That's with Fleming's. Don't even approach him.' But now everything is up for grabs and the question every corporate finance executive asks is: 'How can we get into such-and-such a company?' 'The answer,' he continues, 'is to send in the analysts and tell the company: 'We'll be covering you from now on.' That's how it works. And that is why more and more institutions are employing their own analysts.'

BUBB'S DAY

5.25am Gets out of bed. Every day thinks to himself: 'This is crazy.' His wife hates it, but she doesn't have to get up until 6.30 to get the kids to school. Bubb enjoys a bowl of muesli and a cup of tea before walking to Richmond station to catch the Waterloo train.

6.50am Arrives at his office in Broadgate, near Liverpool Street. Used to turn up at 9.30 when he first started as an analyst 24 years ago, but now the markets open earlier. Deals with 'a ton of overnight e-mails'.

7.00am Stock market opens. Bubb is on alert for company announcements, some expected and others that 'come out of the blue'. Prepares for his next meeting.

7.15am Live TV link to Paris, where SG's continental branches contribute to a 'pan-European sales meeting'. Only large UK retailers, such as Kingfisher, would merit this meeting of analysts and sales people.

7.50am The most important gathering of the day, the 'morning shout'. Bubb and other analysts queue for their turn to address the sales force. 'You need to tell them whether a company announcement has been good or bad, and whether it will change the company forecast. They need the information that might pass them by unless it's flagged up.'

8.15am Speaks to clients on the phone, adding and flagging notes that are coming up.

8.45am Leaves SG building for results meetings or other briefings, sometimes visiting prospective clients.

10.00am Returns to Broadgate. Writes notes from briefings and e-mails his thoughts to clients and SG's sales force.

10.30am Talks again with the sales force and market-makers, discussing reactions to the morning's developments. Tinkers with his spreadsheets and works any new information, gained from sources as varied as Government departments to research consultants, into 'profit models'. Stays on hand to talk to the sales force.

12.15pm Wall Street opens and 'then New York is on the phone, asking what's happening'. Handles numerous media calls. 'The multiplication of media outlets has made life more difficult. But it creates publicity for the firm and if the media aren't talking to you, they're going to be talking to someone else. It's good to get the right view - ie, our view - across.'

12.30pm A quick sandwich at his desk. Rarely has lunch out as there isn't time.

2.00pm and onwards Wall Street company announcements come on the screen. 'I try to write all afternoon and continue with my researches.' If necessary, leaves the office to visit shops - eg, revamped M&S outlets.

3.30pm More media inquiries.

6.00pm Bubb tries to get away, although there may be corporate events to attend in the evening. Catches the train to Richmond.

7.30pm Arrives home (near Mortlake, where family properties are worth close to pounds 1 million). Sometimes has time to watch the The Simpsons with his two sons, aged 12 and 15. Then catches up on reading reports - which he also does on Sundays. 'I might have Saturday free, but on Sunday I need to go through all the papers and prepare for the week ahead.'

11.00pm The day is a done deal. Bubb goes to sleep.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today