SG Cowen Abandons System of Ratings

SG Cowen Securities Corp. became the second investment research firm in a week to eliminate “buy” and “sell” ratings on individual stocks, saying the confusion associated with ratings outweighed the benefits.

“Beginning March 1, we will abolish our rating system and communicate with our clients the old-fashioned way, using the full richness of the English language,” Director of Research Barry Tarasoff wrote in a letter to clients released by the company Monday. Cowen is a subsidiary of Societe Generale, France’s third-biggest bank.

HSBC Holdings, the world’s second-largest bank by market value, said last week that it would phase out stock buy and sell recommendations during the next year.

Many brokerages have been tinkering with their stock ratings since 2002, after New York Atty. Gen. Eliot Spitzer and other regulators alleged that they were tainted because firms seldom advised clients to sell stock.

Spitzer negotiated a $1.4-billion settlement with the largest of the firms in April to settle allegations that much of the research was primarily a sales tool.

Cowen’s Tarasoff said ratings systems used by different firms were incompatible. Some analysts rate stocks relative to their industry peers, for example, whereas others assess them compared with the entire stock market. Some are reluctant to downgrade stocks because of the “drama” involved, he said.

“We wish to emphasize that eliminating ratings does not mean eliminating investment opinions,” Tarasoff wrote. “On the contrary, we believe that abandoning this crutch will allow us to express our investment opinions more clearly and more richly than ever before.”

*

Briefly

The number of U.S. companies raising cash dividend payments to shareholders jumped sharply in February compared with a year earlier, though the total was down slightly from January’s level, Standard & Poor’s said.

The firm counted 191 dividend increases last month, up 21% from 158 a year earlier.

But last month’s total was down from 197 in January.

More companies have been raising dividends since June, after Congress slashed the maximum tax rate on dividend income to 15%, the same as the top rate on long-term capital gains. Many analysts said the change would pressure companies to return more earnings directly to shareholders in the form of dividends.

From a Times Staff Writer