Merrill Lynch, the Wall Street investment bank, is to demand that its army of equity analysts identify far more companies whose shares they believe will fall over a 12-month period.

The diktat, which is to be implemented across all its offices internationally, will force its equity researchers almost to double the number of underperforming companies they cover.

At present about 12 per cent of all stocks covered by Merrill Lynch analysts are issued by companies that the bank believes will produce a negative total return over the year. Under the new regime, 20 per cent of analysts’ stocks must be those that the bank considers will either fall over the year or underperform their peers.

Typically, along with a research note explaining their assessment of a company, analysts also recommend to their clients whether they should buy, hold or sell the stock. The move by Merrill is expected to help to attract other types of clients, such as hedge funds, which often “short” companies.

Shorting a stock means that a client would sell shares it does not already own in the hope that the price will fall. The fund profits if the share price falls below the price at which it had agreed to sell the stock.

A spokesman for Merrill Lynch, however, insisted that the move had been devised to offer better value to all its clients.

The bank added that it was forcing its analysts to elaborate on the reasoning behind their verdict on a company and its share price performance, adding more detail about the risk profile of the firm and predicting the share price in 12 months.

In an e-mail to Merrill’s clients sent yesterday, Candace Browning, president of global research, said: “We are introducing a new equity rating system on June 2 — a framework explicitly intended to provide clients with enhanced transparency into analysts’ views, greater differentiation among the equity ratings within a sector and closer alignment between rating distributions and historical stock performance.”

She added that, under the new rules, an analyst cannot recommend that a client buy a stock unless he can confidently predict and explain why the total return on a share would rise by more than 10 per cent over a 12-month period.

The bank also sought to remind clients that the remuneration of its analysts was dependent on the quality of its predictions.

The President of Germany attacked bankers and corporate executives yesterday, accusing them of creating a financial market “monster” and attributed excessive pay as the root of the irresponsible lending that led to the sub-prime crisis. Horst Köhler hit out at bankers whom he accused of being responsible for a “mass destruction of assets”.

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