Can somebody please explain to me why having an equity research division is advantageous for a bank's IBD groups? I suspect that it has something to do with the fact that the ER side covers a company/is familiar with the company's management, which opens up doors/relationships for the bank's IBD groups to do business with? Are there more reasons? Thanks.
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Banks are not technically allowed to use their research capabilities to help win IBD business, but at the end of the day it's a necessary component. Banks without research coverage would not be hired for equity deals as the company could just go with a competitor who also offers up analyst coverage.
why is it so important to have analyst coverage for the company? is it sort of a gentlemen's agreement that if a deal is done between the bank and the company, then the bank's ER group will publish favorable research on the company, even though it's technically illegal?
I think you're overestimating the value of a sell-side analyst's recommendation.
Well known sell-side Equity Research Analysts who produce convincing papers can actually drive the stock price. Companies who want to IPO will choose a bank who already has an analyst that's covering them. Although the equity research analyst (public side) is not suppose to communicate with the ibankers (private side), there will be rumors and murmurs in the press/papers once a bank is given an IPO mandate. The sell-side analyst then knows he needs to step it up and produce a good paper to help drive the stock price up in preparation of the IPO.
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