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Analyst's Saga: Off the Street, Into Coal Mines
Merrill Ex-Staffer Roling Left His World to Run a Business; Now, Operations Not Rumors
THE WALL STREET JOURNAL
By Paul Glader
November 18, 2006

FOR 25 YEARS, Dan Roling moved in the most influential circles on Wall Street: As a stock analyst specializing in mining companies for Merrill Lynch & Co., when he spoke, the markets often moved.

Today, he's a world away, running a small coal company in Knoxville, Tenn.

It's part of a significant exodus on Wall Street. In recent years, high-profile stock analysts abandoned their jobs -- and in many cases, multimillion-dollar pay packages -- after a series of revelations about biased research. In 2003, Merrill and nine other big Wall Street firms agreed to pay $1.4 billion to settle civil regulatory charges that they had hoodwinked investors by hailing stocks of companies to win their investment-banking business. The firms didn't admit or deny wrongdoing.

The scandals transformed one of Wall Street's most fundamental activities: stock analysis. All analysts were barred from a range of activities, including participating in investment-banking deals.

Mr. Roling, never implicated in wrongdoing, switched gears and headed for coal country. "The fun diminished, and an opportunity arose, so I left," he says. This past May, the 57-year-old Mr. Roling left Merrill, took a pay cut and became chief executive of National Coal Corp., the country's smallest publicly traded coal company. The company, currently unprofitable, has a stock market value of $73.9 million.

He isn't the only one to hit the road. According to data provider Thomson Financial, there are 3,281 research analysts globally at 10 major Wall Street firms -- a 37% decline from 2001, though up from a low of 2,763 in 2003, when the crackdown occurred. Anecdotal evidence suggests that salaries have dropped in recent years as well.

A handful of analysts were banned from the industry for issuing allegedly misleading research. Mr. Roling says he thinks a few bad apples tainted the entire industry. "Just because you have a conflict, doesn't mean [the behavior is] wrong," he says.

Others disagree: "Some of these folks have short-term memories of how biased analysts were misleading investors," says Jake Zamansky, a lawyer who represents small investors who sue Wall Street firms. "Some of those analysts were thrown out of the business for doing this."

Mr. Roling says his new job is a welcome switch. Before the crackdown on analysts, he frequently advised on mergers and acquisitions, and was involved in talking to companies early about deals, although he says he never issued a positive research report to win banking business. Part of the thrill, he says, came from shaping developments. After the new rules, he says, he was informed of deals only after the fact.

A Merrill Lynch spokeswoman says, "Analysts continue to play an important role in the capital markets."

He now makes $600,000 in base salary, plus a possible bonus of up to $300,000 bonus and other benefits, including stock options and a company car. At Merrill, his base salary was $225,000, with a bonus that he declines to specify beyond saying it typically was more than his base salary at National Coal.

Mr. Roling says the new rules forced firms like Merrill to cut back in research, leaving many sectors woefully understaffed. In his field, the U.S. metals and mining industry, Mr. Roling says Merrill has one analyst, down from five in 1989. Without confirming those numbers, Merrill says it continues to cover the global industry comprehensively. The firm says it now covers 2,900 stocks in all industries globally, down from 3,200 in 2001.

While many analysts have started their own independent research shops or have gone to work for companies, few have become CEOs. Mr. Roling earned an M.B.A. from the University of Kansas while working as an accountant and analyst in Kansas City. During a boom in commodities and energy in the early 1980s, he caught Merrill's attention. It was an offer the then-32-year-old couldn't refuse: He moved to Manhattan and became, by his own account, a workaholic.

Eventually, he emerged as one of the most influential analysts in commodities and natural resources. For years, he hosted big-budget industry conferences and consulted on initial public offerings and debt offerings.

Mr. Roling says that level of involvement helped keep the firm out of lousy investment-banking deals. But after the rules changed, "you couldn't talk to a banker without a lawyer present," he says. "I felt the ability to contribute to the bottom line of the firm was heavily restricted."

Analysts often were involved in helping companies put deals together. In addition to issuing stock research for investors, they would work privately with companies on how best they should execute their business plans. Some viewed stock analysts as trusted advisers.

Tom Hoffman, vice president for investor relations at Pittsburgh-based Consol Energy Inc., says Mr. Roling was key to Consol's successful initial public offering in 1999. "He actually understood the business much better than the bankers," says Mr. Hoffman. "He was helpful in crafting the story line for the sale of Consol Energy to the public."

Now, Mr. Hoffman says Consol sees analysts more as links to investors rather than links to the banks they work for.

For Mr. Roling, leading a company is a significant change. "I'm not responding to rumors and economic news and perception all day long," he says. "I'm more focused on operations, real-cost decisions that have impact on the company's bottom line and people. It is more dealing with reality of the economy, versus the perception of what the economy is going to do."

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