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Wit Capital Grabs Merrill's Cohen Amid Talk of IPO

The strategy is to make investment banking research more accessible to the little guy.

Wit Capital

, the self-styled online investment bank, has snagged high-profile

Merrill Lynch


Internet analyst Jonathan Cohen to become its director of research, a move that could serve as a prelude to an IPO for itself.

Cohen's addition is a first step to providing original research, which is necessary for Wit Capital to build up its underwriting business and sharpen its appeal to the retail investors that the company is courting.

"Jonathan, I think, is a big coup for us and will go a long way in establishing our research product," says Amy Cortese, Wit Capital's director of content, who previously served as the software editor for

Business Week


A source familiar with the company indicated Wit Capital might choose to go public soon. "They are definitely looking into it," the source said. The company declined to comment.

Cohen, who was named to the

Institutional Investor

All- American research team in 1996, 1997 and 1998, has achieved a certain notoriety in recent months with his bearish stance on

(AMZN) - Get Free Report

. Cohen initiated coverage on Sept. 1, when it was trading at a split-adjusted $27.92, with a reduce rating on the company -- a rare recommendation for any stock given Wall Street's preference for the euphemistic alternative hold. In mid-December, one day after

CIBC Oppenheimer

analyst Henry Blodget predicted would rise to a split-adjusted $133.33 in a year, Cohen counter-predicted that it would be dropping to a split-adjusted $16.67. The online bookseller, which traded as high as 199 1/8 in early January, closed at 118 Thursday, down 7 3/4.

Founded in 1996 as an outgrowth of an online public offering for the

Spring Street Brewing Company

, Wit Capital is attempting to build itself as an Internet investment bank. In particular, the company has sought to give individual investors the opportunity to buy shares in initial public offerings online at the original offering price, rather than waiting until they start trading.

Wit Capital got a big boost last spring when

Salomon Smith Barney

vice chairman Robert Lessin resigned from the big Wall Street firm and joined Wit Capital as chairman, making an equity investment in the company at the time.

So far, the company says it has participated in more than 50 major stock offerings, selling shares on its site in the IPOs of companies such as






TicketMaster Online-CitySearch



Until now, the 75-person staff at Wit did not have a research department and did not publish original research, Cortese says. In addition to hiring and directing the research team, Cohen will continue to cover Internet companies, according to the firm.

"The addition of a world-class research capability is a major step in our race to reengineer the capital-raising process for the digital age," Lessin said in a company statement.

If the company wants underwriting business, it has to be able to promise research coverage to companies issuing shares following their public offerings. "They are, at the end of the day, an investment bank, and an investment bank needs research," the source says.

The source speculated that Cohen would be taking a significant pay cut in leaving Merrill but probably was getting a potentially valuable stake in the company and an opportunity to create a new type of research. "If it all works out, they are changing the capital markets and the way money is raised," the source said.

According to information supplied by

Securities Data

, Merrill tied for seventh among Wall Street firms in the number of public offerings for Internet-related companies in which it served as lead manager or co-lead. The company led five such offerings, according to Securities Data, behind firms such as

Goldman Sachs

, which had 10, and

Hambrecht & Quist

, which had eight.

Wit Capital did not make Cohen, Lessin or president Ronald Readmond available for comment.

The research that Cohen will be doing is likely to be more conversational than other Wall Street reports, Cortese says. "I find institutional research stilted and meaningless if you don't know the code," she says. "We want to do institutional quality research but in a more journalistic, Web-based approach."

Says Cortese, "Our whole mission is about leveling the playing field for individual investors. Traditionally, they haven't had access to institutional quality research. What we're trying to do, as we're trying with IPOs, is bring that level of information to individuals in a form that's more accessible and intuitive."

A Merrill spokeswoman said that Cohen's colleague Tonia Pankopf has picked up coverage of

America Online











. coverage is under review.