The Zacks Analyst Blog Highlights: Citigroup, Morgan Stanley, UBS AG, Wells Fargo and Accenture plc - Press Releases

By Zacks | May 03, 2012 AAA

For Immediate Release

Chicago, IL - May 3, 2012 - announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Citigroup Inc. ( C), Morgan Stanley ( MS), UBS AG ( UBS), Wells Fargo & Company ( WFC) and Accenture plc ( ACN).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter:

Here are highlights from Wednesday's Analyst Blog:

ETF Sales Cost Firms Millions

Sale of Exchange Traded Funds (ETFs) has cost major Wall Street firms millions in fines. The firms - Citigroup Inc. ( C), Morgan Stanley ( MS), UBS AG ( UBS) and Wells Fargo & Company ( WFC) - have been penalized by the Financial Industry Regulatory Authority (FINRA) over the sale of leveraged and inverse exchange-traded funds.

They must pay a total of $9.1 million, of which $7.3 million is the penalty amount, and the remaining $1.8 million will be reimbursed to the customers who bought the ETFs.

The Allegations

According to FINRA, the brokerage units of these firms - Citigroup Global Markets Inc, Morgan Stanley & Co. LLC, UBS Financial Services and Wells Fargo Advisors LLC - have been accused of selling the leveraged and inverse exchange-traded funds in an improper fashion between 2008 and 2009. FINRA claimed that these firms lacked a sufficient supervision mechanism for this variety of ETF sales.

Sufficient due diligence were not performed on the risks and characteristics of the ETFs. Therefore, there was no reasonable basis to advise the ETFs to retail customers. Moreover, it was found that some of the customers with a conservative risk appetite and investment targets were recommended this type of ETFs by the firms' representatives.

The charges were neither admitted nor denied by the firms. They consented to the FINRA findings.

Leveraged and Inverse ETFs

ETFs are a type of security that trades on stock exchanges like stocks. They mostly track an index or benchmark and hold assets such as stocks, commodities, or bonds. Leveraged ETFs particularly make use of the financial derivatives and debt to magnify the returns of an index or the benchmark, while Inverse ETFs seek to return the opposite of the index or benchmark they track.

Notably, complexity and added risks are present in leveraged and inverse ETFs which make them unsuitable for holding them long. As a result of risks related to daily reset, leverage and compounding, if these instruments are held for long periods and specifically in volatile markets, then their performances substantially vary from the underlying index or benchmark performance. It was found that the customers held leveraged and inverse ETFs at such times.

Penalties in Detail

Among the four firms, Wells Fargo's penalty is the highest. The company needs to pay a $2.1 million fine and $641,489 in restitution. Next is Citigroup, which needs to pay a $2 million fine and $146,431 in reimbursement. Morgan Stanley has to pay a $1.75 million fine and $604,584 in restitution while UBS will pay $1.5 million as fine and $431,488 as reimbursement.


Post financial crisis, financial firms have witnessed increased scrutiny by regulators, and penalization for misguiding investors either through suppression of information regarding the risky profile of the instruments sold or though any other fraudulent activities. We believe that such efforts on part of the regulators are in the best interest of the investors.

As a matter of fact, FINRA had warned about the sale of these instruments earlier and the firms have accordingly implemented policies, procedures and training for better supervision and to satisfy regulatory requirements. We believe such efforts will instill investors' confidence in the market for such instruments.

Accenture Bolsters Saudi Connection

Accenture plc ( ACN) will now act as a management consultant to the Saudi Electricity Company ("SEC"). Financial terms of the deal were not disclosed.

Generally, the energy sector in most Middle East countries is state-owned. But the desire to attract foreign direct investment is now resulting in joint ownership between public and private companies. Saudi Arabia's electricity market is growing rapidly.

The country started its liberalization procedure roughly two decades ago and formed SEC, which was majority-owned by the local government. But in 2007, SEC sold out some shares to independent power producers. SEC is now planning to further liquidate its stake to roughly 20.0%.

Accenture will technically support SEC's restructuring procedure. For this, the consulting and outsourcing giant will develop and implement a strategic project management program to support SEC in identifying and managing various projects, redesigning the inter-company operating procedures, monitoring performances of the subsidiaries and encouraging unified operations.

We see this contract as a key long-term revenue contributor from this region, given SEC's broad exposure. Accenture formed a joint venture with Saudi Arabia-based Faisaliah Business & Technology Company ("FBTC") in June 2011, in an attempt to explore opportunities in the energy, utilities and petrochemical sectors in the Middle East.

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter:

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today:

About Zacks is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leon Zacks. As a PhD from MIT Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at

Visit for information about the performance numbers displayed in this press release.

Follow us on Twitter:

Join us on Facebook:

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

ACCENTURE PLC (ACN): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
UBS AG (UBS): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
To read this article on click here.

You May Also Like

Related Analysis
  1. Stock Analysis

    Duke Energy to Build 13 MW Solar Facility at Camp Lejeune - Analyst Blog

  2. Stock Analysis

    Integrys Focuses on Regulated Business, Organic Growth - Analyst Blog

  3. Stock Analysis

    Forex Capital Markets (FXCM) Fights Back - Video Blog

  4. Stock Analysis

    Ball Corporation (BLL) to Grow Through Capacity Addition - Analyst Blog

  5. Stock Analysis

    Supernus Files Oxtellar XR Patent Infringement Lawsuit Again - Analyst Blog

Trading Center