Stock Manipulation

Lies, Damn Lies and Analyst Reports

frankfurt boerse dpa
Some powerful market analysts are abusing their power to affect stock valuations to manipulate share prices, experts say. Pictured: The Frankfurt Stock Exchange.
  • Why it matters

    Why it matters

    Some publicly traded German companies are being targeted by activist investors armed with dubious analyst reports designed to manipulate share prices and generate illegal profits. The German regulator Bafin warned investors of the abuse this week.

  • Facts


    • A number of German companies have recently been hit with critical research reports, published and indirectly paid for by aggressive activist investors seeking to gain control or benefit from artificial stock price fluctuations.
    • The German financial regulator Bafin this week warned investors to consider the source of analyst reports but said it could do little to police the industry, except in cases of deliberate falsehoods or undisclosed conflicts of interest.
    • Many companies are equally aggressive about intimidating independent research, and as a result, the vast majority of analyses of German shares are rated as a BUY.
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For senior managers at Stada, a publicly-listed German pharmaceutical company, the week began with loud alarm bells ringing.

The investor Active Ownership Capital had bought a large stake in the company and wasted no time in going on the attack: five of the 6 members of the board had to go, demanded the new investors.

To support their claim, they published a report written by the investment group’s own analysts, claiming to show that Stada’s share price and its business were falling far behind its rivals.

This is just one example among many of an attack made with the help of analysts.

Almost every week, activist investors show up at some company or other, with a devastating report in hand, propagating dubious information and demanding radical changes. The short-term goal is usually to move the share price one way or another.

And it usually works.

The weapon of choice here is the in-house analyst and their supposed well-researched, critical reports.

But unlike analysts at banks and investment houses, who are at least theoretically independent, these analysts produce knowledge to achieve a specific goal. No matter whether the aim is to drive a target share up or down, it usually causes a crisis in the company under attack.

“The more executive bonuses are tied up with the stock price, the more sensitive investor relations managers get.”

An unnamed, head of stock market research at a large German bank

Take outdoor advertising group Ströer: In April, a hedge fund, Muddy Waters, produced an analysis calling the advertiser’s balance sheet into question. Its stock fell 30 percent, and still has not recovered. Online payments company Wirecard suffered a similar attack earlier this year: Its share price crashed after short-sellers used analysts’ reports to cast doubt on the company’s health.

It isn’t easy for companies to defend themselves against the attacks. They are only illegal if information is deliberately falsified, or there is a purposefully concealed conflict of interest. In that case, they can be punished by a one to 5-year prison sentence for market manipulation.

On Monday, the German financial regulator Bafin issued a warning to investors about analysts’ reports.

But the warning mostly amounts to “buyer beware,” or “reader beware”: Investors should bear in mind that analysts can have their own ax to grind, and come to their own conclusions, said the report.

But the pressures are not all in one direction.

Relations between companies and analysts can be very tricky these days. This is not just because of analysts who churn out critical reports in the service of activist investors. There has been tension too between traditional bank analysts and over-stretched, over-sensitive investor relations managers.

Insiders will only speak about the battle over analysts’ ratings and recommendations on condition of anonymity. The head of stock market research at a large German bank said this of managers’ sensitivity: “The more executive bonuses are tied to the stock price, the more sensitive investor relations managers get.” And when corporate crises hit, that sensitivity goes through the roof.

Company pressure on analysts has a clear consequence: The vast majority of all analyst reports on German shares recommend a BUY. There is “pressure from companies on analysts,” said Ralf Frank, managing director of the German association of financial analysts, or DVFA. Even a “HOLD” recommendation can be seen as a negative judgment, which in turn can lead to companies giving analysts seen as hostile the cold shoulder.

But some company reactions are understandable.


10 p04 Thumbs Up, Usually-01


Analysts do regularly make a huge difference. When Goldman Sachs changed its rating on BMW to “BUY” in mid-April, the share price shot up. According to research by Pierre Drach, the owner of Independent Research, an analysis firm, companies in comparatively good shape tend to react worst to poor ratings – they are unaccustomed to tough questions and negative judgments.

And there are plenty of nervous investor relations managers out there. Volkswagen’s emissions scandal and product recalls have made many car makers twitchy about analyst ratings. So is clothing maker Boss, now faced with heavy restructuring. “Everyone’s nerves are on absolutely edge at Boss,” an analyst at a German investment firm told Handelsblatt.

Some firms are hitting back. Norbert Steiner, the chairman of the salt maker K+S, thinks analysts failed to acknowledge the strength of their potash mining operations in Canada. “I am extremely unhappy that most analysts simply failed to include that value in their long-term evaluations,” he said.

Companies sometimes respond indirectly, freezing out analysts they see as hostile, who can suddenly find investor relations managers harder to contact.

Unpopular analysts are sometimes excluded from conference calls or results presentations.

“The CEO was so enraged by one study that he invited me over. Within a couple of minutes, he shouted the ‘F-word’ at me 6 times.”

prominent British stock market analyst

If they are invited, they may find themselves on the receiving end of a tirade. “The CEO was so enraged by one study that he invited me over. Within a couple of minutes, he had shouted the ‘F-word’ at me 6 times,” said a British analyst generally seen as critical. “But I wear it like a badge of honor. It means you’ve hit a nerve,” he added.

Cunning methods may get better results. “Sandbagging” is a well-known practice, particularly in the United States. This involves companies deliberately downplaying forthcoming results to analysts, only then to “beat market expectations” when things turn out better than predicted.

Shouldn’t analysts spot the trick?

“Most of the time analysts just believe what companies tell them,” said one critic, Atul Lele, the chief investment officer at Deltec International, a logistics company for the financial industry. “A company talks down expectations, and the analyst goes ahead and plugs their numbers into his model.”

So it is hardly surprising when some analysts get cynical. No one wants to speak publicly about it, but studies show that analysts rate companies considerably better if they are about to issue new shares or bonds, bringing new business to the analysts’ banks.

In some cases, analysts have been highly selective in releasing information: In 2014, the U.S. Financial Industry Regulatory Authority hit Citigroup with a $15 million fine. Citi analysts had invited selected customers to a dinner, then given them their real assessments of shares, which was quite different from their public ratings.

The bottom line: Critical analyses are legal, as long as any possible conflict of interest is made public. Even short selling is OK, as long as these guidelines are followed, says the German regulator, Bafin.

But investor advocates say this is not good enough. Jürgen Kurz, the spokesman for DSW, Germany’s oldest and largest association for private investors, argues that banks should be made liable for their analysts’ public judgments.

“It would make sense if legislators would establish norms of liability in this area,” he said.


Peter Köhler, Anke Rezmer and Frank Wiebe are editors at Handelsblatt who cover financial markets, among other topics. To reach them:, and

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