NEW YORK (CNN/Money) -
Merrill Lynch & Co. has eight more days to talk to the New York state attorney general about making reforms to its stock research business after the two parties agreed to extend the deadline until April 19.
But shares of Merrill remained under pressure as concerns about the attorney general's actions combined with pre-earnings worries, according to one analyst.
A stay of a court order obtained Monday by New York State Attorney General Eliot Spitzer, requiring Merrill to make disclosures to investors about its business with investment banking clients and provide more context for its ratings, was set to expire at 5 p.m. ET Thursday.
Both the attorney general's office and Merrill confirmed the extension, but had differing views as to the reason.
Merrill said the firm and the attorney general agreed to extend the judge's stay "to allow more discussion of additional disclosure in research reports."
But N.Y. attorney general spokeswoman Juanita Scarlett said the extension was simply to give Merrill the time to iron out technical problems with complying with the order.
Scarlett said Merrill has agreed to make the necessary disclosures and the attorney general's office is working with them to ensure full compliance with the court order.
But Merrill spokesman Tim Cobb said that while technical compliance is one issue, as the brokerage understands the agreement there are still issues to be nailed down.
Shares of Merrill (MER: down $4.02 to $46.90, Research, Estimates) were down about 5 percent before the extension announcement and closed down nearly 8 percent.
"It's the attorney general and a question of revenue growth," said Andrew Collins, analyst with U.S. Bancorp Piper Jaffray. "It's a slow environment and these stocks came up pretty fast."
Collins said the company is facing a dry mergers and acquisitions pipeline and the possible consequences of the attorney general's actions aren't helping.
Merrill is scheduled to report first-quarter results on April 17.
Jim Hanbury, analyst with Dresdner Kleinwort Wasserstein said Merrill's afternoon drop had nothing to do with the extended deadline, as the stock was already under pressure, and attributed it to the fall in the broader market.
The stock has fallen about 13 percent since its close of $53.90 on Friday, April 5.
On Wednesday, a source familiar with the situation told CNNfn that Spitzer has also served subpoenas on Morgan Stanley, Salomon Smith Barney, Credit Suisse First Boston, Bear Stearns and UBS-PaineWebber.
Subpoenas are expected to be served this week on J.P. Morgan, Goldman Sachs and Lazard Freres, the source said.
Spitzer said he uncovered a "major breakdown" in the separation of Merrill's research and banking arms and said copies of internal communications at Merrill showed that even the analysts did not believe the ratings they were issuing.
He also released e-mails from analysts that suggested they were uncomfortable with the pressure being applied by investment banking customers in reaction to potential negative comments from analysts.
"The more I read of these, the less willing I am to cut companies any slack, regardless of the predictable temper-tantrums, threats and/or relationship damage that are likely to follow," reads one e-mail from well-known Internet analyst Henry Blodget. "If there is no new e-mail forthcoming from [Merrill management] on how the instructions should be applied to sensitive banking clients/situations, we are going to just start calling the stocks...like we see them, no matter what the ancillary business consequences are."