Merrill Lynch ( MER) fired top retail analyst Peter Caruso Tuesday night because he violated the firm's research policy, according to a spokeswoman.

Merrill said Caruso, who followed 20 stocks, violated the company's policy "regarding the disclosure of an earnings estimate change." Caruso had been ranked No. 1 among retail analysts by Institutional Investor for the past five years.

Spokeswoman Melanie Begelman refused to comment on speculation that the analyst had been let go because he warned select clients about his imminent downgrade of Home Depot ( HD).

Shares of Home Depot fell about 17% in the days before the downgrade. When Caruso cut his recommendation on July 12 to neutral from strong buy, the stock shed another 7.4%.

Caruso raised a host of concerns at that time, from weaker sales trends compared with rival Lowe's ( LOW) to potential inventory problems that could weigh on the stock. Caruso couldn't be reached for comment, and his lawyer Julian Friedman didn't return calls.

Amid Changes

The firing came on the same day that Merrill hired an analyst and a lawyer to oversee changes to the firm's research department. Merrill named Bill Genco as the inaugural chairman of the Research Recommendation Committee and said Mark Goldfus, special counsel and director of public policy analysis, would be assuming the additional responsibility of compliance monitor for research activities.

Earlier this year, Merrill agreed to pay $100 million to settle charges that it had issued biased research in an attempt to win investment banking business. New York state attorney general Eliot Spitzer released emails showing the firm's analysts privately disparaging companies while publicly recommending them.

"Our clients, our management and the investing public expect the highest possible standards of professionalism in every aspect of Merrill Lynch's business," Begelman said. "Anything less will not be tolerated."

Merrill Lynch was lately down 0.5% to $37.26.

Home Depot was rising 7% to $32.40 a day after the company said second-quarter net income rose 28% to more than $1 billion. On Tuesday, the company also addressed various concerns that have sent its stock falling in recent months. President and Chief Executive Bob Nardelli said the company is improving its stores and plans to add $500 million in fresh inventory, among other things.

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