Wall Street analysts who recommended Enron stock as a "buy" have been defending themselves against criticism during a hearing with US Senators.

"It seems clear that too many analysts failed to ask 'why' before they said 'buy'," said Connecticut Democrat Joseph Lieberman, who was chairing the Senate investigative panel on Wednesday.

Mr Lieberman grilled the analysts on their links with underwriters

Eleven of 16 analysts covering Enron were still rating the company as a "buy" or a "strong buy" as recently as 8 November.

But, during the Senate hearing, four investment bank analysts said they had been misled by Enron's false financial reporting.

Senators also questioned the analysts' independence from colleagues working on underwriting deals for Enron.

Misled?

Late last year, Enron restated its earnings before filing for bankruptcy on 2 December.

Without accurate and compete financial reporting by the company, I simply could not have the tools to do my job

Curtis Launer CSFB

"Without accurate and compete financial reporting by the company, I simply could do not have the tools to do my job," said Curtis Launer, an analyst at Credit Suisse First Boston.

The four analysts before the panel included Mr Launer, Raymond Niles of Citigroup, Lehman Brothers' Richard Gross and Anatol Feygin of JP Morgan Chase.

Enron's stock closed at $19 on 24 October last year, following an eventual downgrade by one of the analysts. It was 78% down from its high of $90 on 23 August, 2000. The stock was later halted at 67 cents.

Alarm bells

Mr Niles said most of the analyst community had "missed the mark on Enron".

For analysts to say there were no warnings in the public filings, they could not have read the same filings that I did

Howard Schilit CFRA

However, Howard Schilit, an analyst at the independent financial advisory firm CFRA who was also testifying, disagreed.

He told the Senators that in just one hour of scrutinising Enron regulatory filings he had filled three pages with examples of questionable disclosures.

"For analysts to say there were no warnings in the public filings, they could not have read the same filings that I did," he told the hearing.

Conflicts of interest

Senators suggested the analysts showed a bias toward Enron because their banks provided underwriting services for the company's bond issues.

"I fear, and I am not alone in this fear, that the majority of analysts work at Wall Street firms and banks that are doing underwriting with the companies they are analysing," said Mr Lieberman.

But Mr Launer responded: "I performed my analysis objectively and never felt pressure from any investment banker, Enron or any other employee at my firm to reach any conclusions other than my own."

JP Morgan Chase's Anatol Feygin added: "I did not own Enron stock. I have complete freedom with respect to the recommendations that I make concerning any (stock) and my compensation is not tied to the recommendations that I make."

Chinese walls

Chinese walls between analysts and investment bankers at the same firm have become a contentious issue, particularly following the failure of highly rated dot.com companies.

"The investment bank analysts do get paid out of a pool of money that is created from the revenues of the investment banking business," Paul Ciasullo of Credit Sights in New York told the BBC's World Business Report.

"So it is certainly the case that they are not independent and that they are not unbiased from the standpoint of their compensation being tied with the business that that firm does with their firm," he said.

The National Association of Securities Dealers is proposing measures that would introduce better controls at investment banks.

Mr Skilling employed a combative style

The Senators warned that that unless the financial industry tried to restore confidence, Congress would likely pass legislation or pressure regulators to modify accounting standards, company disclosures and conflict of interest rules.

During previous Senate hearings on Tuesday, Enron's former chief executive Jeffrey Skilling outraged Senators by insisting that he had not done anything wrong.

His comments that Enron's collapse was caused by a "classic run on the bank" created such anger that the hearing degenerated into a slanging match at times.

Mr Skilling's testimony also did not tally with the testimonies of two other key witnesses - Enron's chief operating officer Jeffrey McMahon and "whistle blower" Sherron Watkins - in the Enron affair.