Bank put money where its mouth is

Some may say it’s having skin in the game and others a potential conflict of interest. Research analysts at Canaccord Genuity seem to love backing stocks they cover.

Canaccord says it has ‘always been transparent in our disclosures related to analysts’ ownership of certain equities under coverage’. Above, a recent Canaccord investor presentation document image.

Some may say it’s having skin in the game. Others would describe it as having the potential to turn into a serious conflict of interest – either way, research analysts at Canaccord Genuity seem to love backing the stocks they cover.

The bank’s analysts or others “directly involved” in the preparation of independent research had long positions in 24 per cent of the 189 ASX-listed companies on its equities coverage list.

The disclosures, sometimes not included in the appendices of notes sent to clients but instead on an online portal, also show Canaccord had in the last 12 months provided – or were currently engaged in – services for at least 69 of the companies on the list.

The bank intended “to seek or expects to receive compensation for investment banking services … in the next three months” for every stock it covered – bar one.

On Monday, The Australian reported Canaccord had circulated numerous research notes to its clients that did not mention that payments for its investment banking services were partially tied to the share performance of the companies it was recommending as buy opportunities.

On Tuesday, The Australian reported Canaccord had issued a bullish note recommending clients buy shares in Eagle Mountain Mining eight days before the copper explorer said it was raising capital – with the assistance of the investment bank.

The Australian is not suggesting Canaccord broke rules, only that more explicit disclosure of its relationship with the companies it covered would have benefited clients using the research to inform decisions.

In a statement on Tuesday, Canaccord said it had “always been transparent in our disclosures related to analysts’ ownership of certain equities under coverage”.

“This is evidenced by the ease of which you were to find this information.

This is a common and legal practice and one that is not unique to Canaccord Genuity. Analysts’ ownership in the companies they cover is permitted, subject to requirements that they may not trade against their rating (unless they can prove financial hardship), and that they receive prior approval from compliance.”

Gilbert + Tobin partner Adam D’Andreti, speaking about disclosures in general and not specifically about Canaccord – a client – said the corporate regulator had “left it in the discretion of the institutions themselves to determine what level of disclosure of their own interests is appropriate”.

“From a legal perspective there’s not a bright line test as to exactly how that disclosure ought to look,” Mr D’Andreti told The Australian.