Merrill Lynch apologises for intemperate e-mails

The head of Merrill Lynch yesterday apologised publicly for falling "far short of our professional standards" in its research.

The contrite remarks of chief executive Mr David Komansky came against a background of state and federal investigations of conflict of interest in the promotion of companies with which Merrill Lynch was doing - or hoped to do - business.

Two weeks ago, New York state attorney Mr Eliot Spitzer revealed after a 10-month investigation that Merrill Lynch analysts often made scathing comments in internal e-mails about companies that were recommended by the company, such as "piece of junk" or "powder keg".

"The e-mails that have come to light are very distressing and disappointing to us," Mr Komansky told the firm's annual shareholders' meeting in New Jersey. "They fall far short of our professional standards, and some are inconsistent with our policies. We regret that, and we further regret that the perception of our research integrity has clearly been affected."

He promised that "we will take strong actions against anyone who violates" company policies and that Merrill Lynch would "adopt some new policies that will help us restore confidence in the integrity of the research process".

Mr Komansky also alleged that new research policies standards which Merrill Lynch last week agreed to adhere to are "far beyond the current industry standard".

Mr Komansky's expression of regret is a first step towards meeting one of the demands of Mr Spitzer, that Merrill Lynch acknowledge it did wrong in hyping stocks. The company, till now, had simply denied any wrongdoing and officials who contacted the media made disparaging remarks about Mr Spitzer as a publicity-seeker.

The state attorney general extended his investigation on Wednesday to Salomon Smith Barney by issuing a subpoena requesting all documents relating to the research work of Mr Jack Grubman, the firm's star telecommunications analyst.

The Securities and Exchange Commission (SEC) has joined the investigation, which has extended beyond Merrill Lynch to other Wall Street names, and could involve criminal charges. The SEC said this week it had opened a "formal inquiry" into possible conflicts of interest, after criticism that it was not taking sufficiently urgent action in the light of public anger.

Mr Harvey Pitt, the SEC chairman, called the probe "the next step - and a critical one - in the commission's year-long review of analyst practices", according to a rare statement. It is SEC practice not to confirm an investigation is under way.