Analysts Late to the Alarm

"The credit markets team had it right the whole time, at least directionally," Wessel said. He added: "So I think it was easy to use that and say, 'There's something to this, let's apply it to the equity valuations.' "

Some Wall Street firms said they would increase coordination between equity and credit analysts in the future. "That is probably something in hindsight we would do more of going forward," said Greg Peters, who runs the fixed-income research group at Morgan Stanley. "In terms of what the fixed-income folks were thinking versus what translated with the equity market, I would say there was not enough coordination between those two markets generally."

Richard X. Bove, a stock analyst at Punk Ziegel, said the credit crisis was "impossible to miss." In an October 2006 report, he warned of "loan quality problems . . . that the banks have not prepared themselves to meet."

But he did not start downgrading the shares of banks and Wall Street brokerages to "sell" until July, when some had already begun to fall. (He recently upgraded some to "buy," saying their lower prices make them a good value.) Most of his peers maintained their neutral ratings on Wall Street firms, several of which have fallen nearly 40 percent this year.

Asked why he did not downgrade them sooner, Bove spoke of the pressure to always be right, the difficulty of going against the tide and the need to hang on to clients, which include mutual funds and other money managers.

"You live or die based upon your stock picks," he said. "If you think everything's terrible, but everybody else thinks things are great and they keep buying the stocks, and you put a sell too early, then people are just going to walk away from you . . . I've got to get paid also, and if I start putting sells on companies when the market momentum is forward, basically, people aren't going to pay me."

Negative views on a company, Bove added, could also jeopardize relations with management at the companies they cover, which are often necessary to provide a key service to clients: delivering executives for meetings.

"They're paying for travel agency service," said Bove, who said one potential client declined to pay for his services because he did not provide access to management. "They want company visits. That's what they're all about."

Bove added that the chief executive of one large financial services company, whom he declined to name, has shut him out after unfavorable reports. "You think he's going to travel with me to visit a client?" he said. "Absolutely not. He won't even talk to me."

The pay and stature of Wall Street analysts have greatly diminished since the tech bubble burst in 2001, when Eliot Spitzer, then New York's attorney general, subpoenaed firms that made handsome fees underwriting the initial public offerings of technology companies. Spitzer uncovered an e-mail in which Henry Blodget, a high-profile tech analyst at Merrill Lynch, disparaged the stock of a company he was publicly promoting. Subsequent reforms included a Securities and Exchange Commission rule that forbade firms from tying analysts' compensation to investment banking work.

Spitzer's successor, Andrew M. Cuomo, has also subpoenaed Wall Street firms as questions have arisen about their lining their pockets packaging and selling subprime mortgages that soon defaulted. People at the firms say analysts were not pressured to promote securities backed by those mortgages.

Kent Womack, professor of finance at the Tuck School of Business at Dartmouth, and a former vice president in the equities division at Goldman Sachs, noted that unlike the tech bubble days, analysts are no longer as motivated to skew their research because their pay is not tied to how many of these subprime securities their firms sell. But pressures remain, said Womack, who co-authored a study in 2000 showing analyst recommendations at investment banks that underwrote public offerings of stock were not as accurate as those of analysts at other firms.

"Equity analysts and debt analysts would recognize the important revenue and profit implications of helping out the investment banking department," Womack said. "The direct pressure is less, but it's still clear that if there's going to be a big investment deal, it's good for the whole firm and probably for the analyst to help out."

Wessel, of J.P. Morgan, said he works in a separate building from his colleagues who underwrite and sell subprime securities and doesn't even know them. Their business, he said, has no impact on his research. "In this business post-Spitzer, as a research analyst, the only thing you have is your reputation and your credibility," he said.

Staff researcher Richard Drezen contributed to this report.