Doing the Wrong Thing: Tracking Stock

The only people that tracking stock benefits are the investment bankers.
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What, no tracking stock from

AT&T

(T) - Get Report

? What gives? How about common sense? If there is anything that is more spurious, more investment banking-centric in thinking, it is tracking stock. It is the type of thing that drives real stock people crazy, because it is a sucker play.

Here's how tracking stock gets created. An executive from a major company wants to raise his stock price. He goes to meet an investment banker. That investment banker says, Hey, what makes the most money for my firm and also has the appearance of creating value for the client? If the investment banker can't hand the company over to mergers and acquisitions, where the fees are largest, he goes over to corporate finance and drums up an underwriting. In this case it would be tracking stock. Big fees there.

He does not say the obvious, which is: "Build your business and improve your execution, and you will have a higher stock." That makes no one any money. He does not say, "Maybe change management." That doesn't make any money either.

No matter that the shareholders and management types themselves don't want or believe in tracking stock. If they did, don't you think

GE

(GE) - Get Report

would have set one up? Or

Microsoft

(MSFT) - Get Report

? They have good divisions worth tracking. Tracking stocks are a headache and a distraction for everyone except the investment banker.

I wish that investment bankers would take an oath like doctors: First, do no harm. If they would, they would never recommend tracking stocks. Thanks, AT&T for seeing through the bogus reasoning offered by others. You continue to do the right thing for shareholders, which is also the right thing for the company, even though it is certainly the wrong thing for the bankers.

James J. Cramer is manager of a hedge fund and co-chairman of TheStreet.com. At the time of publication, the fund was long GE and Microsoft, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column by sending a letter to TheStreet.com at letters@thestreet.com.