Indonesia penalizes JPMorgan for negative report in latest emerging markets skirmish

Indonesia has cut some ties with JPMorgan Chase & Co after the bank's research analysts issued a negative report on the country, the latest in a series of skirmishes between Wall Street banks and governments in emerging markets.

Indonesia will no longer use JPMorgan as a primary bond dealer and has also revoked a special designation that allows it to perform certain banking services, Suahasil Nazara, head of the Ministry of Finance's fiscal policy office, told Reuters on Jan. 3.

It is the second time recently that JPMorgan's research arm has drawn ire from the Indonesian government, and highlights the inevitable conflicts banks face when their analysts express a negative view on a country or company that their investment bankers are trying to court.

In other cases, banks have altered research reports, lost lucrative contracts or parted ways with analysts following controversies about their negative opinions.

JPMorgan did the right thing by not backing down from its report, said Roy C. Smith, a finance and management professor at New York University's business school. The bank stands to lose relatively little in Indonesia, where it does not have much financial exposure.

"(It's) a mistake by Indonesia, which needs JPMorgan's support and advice more than the bank needs Indonesia," Smith said. 

"No effort by governments unhappy with research calls to 'discipline' the banks has been successful, though efforts are made from time to time to satisfy local political expectations."

Global banks made changes to how they perform research in 2003, after a sweeping settlement with then-New York Attorney General Eliot Spitzer and U.S. regulators. They erected hard barriers between analysts and bankers and altered...