Merrill says 'sorry' in conflict deal

AMERICA'S largest retail broker Merrill Lynch has reached a settlement with the New York attorney general over analysts' conflict of interest charges and issued an extraordinary apology from chief executive David Komansky for 'any unprofessional behaviour'.

After days of speculation, Merrill confirmed the settlement, which includes new restrictions to strengthen the Chinese wall that separates investment banking from research units and a $100m (£69m) fine. Merrill has also agreed to appoint an ombudsman and a special committee to oversee analysts' independence and to formally separate analysts' pay from investment banking business.

Merrill and other big Wall Street firms have been under pressure since New York Attorney General Eliot Spitzer released damaging internal emails that showed Merrill analysts privately trashing companies they were praising in published reports. Spitzer said the current system rewarded analysts who retained good ratings on companies, which in turn helped the firm gain lucrative investment banking business.

Under the terms of the settlement, Merrill will take the unusual step of monitoring communications between analysts and their investment banking colleagues, though early analysis of the deal indicated that Merrill research analysts could still accompany their investment banking colleagues to meetings with corporate executives.

Merrill's shares, which had fallen 21% in recent weeks, rose sharply, up $2.12 to $45.50 in early trading.

Legal experts say the settlement will provide a framework for other Wall Street firms under investigation, a list thought to include Salomon Smith Barney, Credit Suisse First Boston and JP Morgan Chase. Merrill rival Goldman Sachs also announced plans to review its research operations. Spitzer said: 'By adopting the reforms embodied in the settlement, Merrill Lynch is setting a new standard for the rest of the industry to follow.'

However, the settlement will not stop the wave of civil litigation over allegedly tainted advice. Dozens of shareholder suits have been filed against the major brokers and their research analysts, particularly in the dotcom sector. The Spitzer settlement could provide fuel to the suits and legal experts believe the total cost to the industry to settle the civil litigation could well reach billions before it is all over.