The boundaries between the research and investment banking arms of securities firms can get blurry when a client is in play.
Take Morgan Stanley & Co. for example. The Wall Street firm is an adviser to Canadian Pacific Railway , which New York activist Bill Ackman has just declared war on in the form of a proxy battle to shake up its management.
Morgan Stanley bankers Mark Eichorn, a managing director, and Nelson Walsh have been helpful advisers to Canadian Pacific in recent years. Which is why careful market watchers paid close attention when the firm's transportation analysts, led by William Greene, published two bullish reports about the likelihood of Mr. Ackman succeeding with his plan to put Hunter Harrison in the conductor seat at CP.
The strongest of the two reports was published Jan. 4 in the form of a "research tactical idea" for investors. The idea was that CP's soaring stock would elevate even further in the next 60 days because of the analysts' estimate that CP's stock could "trade as high as $100" because of the "80%+ or highly likely probability" that Mr. Harrison would be hired or the board would be challenged at a proxy vote.
The bullish reports so intrigued Mr. Ackman that he brandished one in a letter to CP's chairman John Cleghorn in an e-mail that can be read here. (
Five days later, Morgan Stanley beat a tactical retreat from the estimate with a very unusual alert. "Effective immediately, the Tactical Idea published on Canadian Pacific Railways Ltd. . . has been discontinued and should no longer be relied upon."
A spokeswoman for Morgan Stanley was not able to offer an immediate comment on the withdrawal. (Later on Thursday, the spokeswoman said Morgan Stanley issued a research restriction on Canadian Pacific because of the events of July 9, when Mr. Ackman announced a proxy contest against the company.)
If Wall Street practices are any indication, the retraction may be explained by the fact that Morgan Stanley was not formally retained by CP until after Jan. 9, which is when Mr. Ackman announced that he was launching a proxy contest. It is common practice in the investment industry to suspend analysts' coverage of clients that have retained the firm for banking or other services. It is rare, however, to see existing reports kicked into the abyss.
Most other analysts are neutral on the outcome of Mr. Ackman's bid to replace a minority of the company's directors. The majority of analyst reports published in the past week are bullish that if Mr. Harrison wins sufficient votes, his leadership at CP would trigger a further run in the railway's stock price.