Equity Research - Which banks will "survive" post-MiFID?
Question: Incoming FT in Equity Research and as the news go (lately with Nomura signaling a shake-up), I was wondering which banks you think will have to cut down significantly when the effect of MiFID have gone into place?
Sub-question: As an incoming FT for a BB (without getting to specific one of these Citi/GS/DB), should I be worried about my FT getting revoked as the market turns sour? I'm rejecting other opportunities as of now since I'm really passionate about ER but I don't want to ruin my future career as a new grad standing there without a job.
My take:
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Bulge brackets that have strong ECM divisions (JPM, MS, BAML,...) will HAVE to keep their research division as a minimum to have the intellectual property in place to win deals in order to cross-place analysts. In addition to this, BBs need to have an opinion/voice regarding markets/countries/companies and it would hurt their reputation to much to cut too much. Worst case scenario, ER becomes fully supporting division in these banks.
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Middle-market banks will have to cut down the most if not get out of the game entirely.
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Independents/specialist that are top ranked will also survive if not thrive as their business models are more in line with the new regulations.
What are your takes?
Neo.Waaht, sorry about the lack of response. Maybe one of these topics will help:
Maybe one of our professional members will share their wisdom: Amoore24 Ygal-Arounian wlutrell
Fingers crossed that one of those helps you.
Winners:
“Underwriter” Bulge Brackets: JPM, MS, UBS, Citi, DB, Barclays, GS
Large “Boutiques” like Evercore, Bernstein
The big question are firms like RBC, Jeffries, Nomura, Cowan, Wolfe, Baird, KeyBanc, etc. Some of these firms could reposition themselves as smid-cap specialists if bulge brackets drop smaller companies, but we shall see.
May I ask why do you think the BBs/ big boutiques will benefit from Mifid 2? And what do you mean by underwriter in this context?
This is all relative here. Very few research shops and equity desks will see higher revenues. My ranking was based on those that will retain the most revenue, which I stand by
“Underwriter banks” simply mean banks with a lot of ECM business
There are no winners in the BB, it's just losers vs. huge losers vs. bankrupt.
Also, Barclays is not winning anything as they lost all their best analysts recently.
Jefferies* and the others you list are in trouble, whether they re-position or not. How much money do you think is made from covering SMID stocks? You'll be getting what, $1mm max of trading volume so that's a sweet 5 figure commission to split between trading, sales, and research? Good luck with that model.
Jeffries model always has been to chase the banking business, which they have seemed to do recently with some hires and initiations. If a bank can convince themselves they need analysts to win banking business, they will find a way to pay those analysts
This gets to a broader point - SMID cap corporates are big fee payers to banks in terms of M&A, equity and debt. And they seem to care a decent amount about their research coverage. They aren’t going to like if banks simply drop their coverage due to Mifid...
How would UBS, Barclays and Evercore be winners? These banks have few top-ranked analysts. It should also categorically be stated that European banks are the losers. Nearly all American asset managers are still paying soft dollars and I have heard no talks of that changing. Its just the socialists across the pond suffering.
And the ones you list as questionable, RBC and Jeffries strike me as entirely different animals from the others. These two actually have respected research practices and show up on the league tables.
It is hard to predict the effects of regulation... it often doesn't have the intended outcome. Without knowing anything else about your situation, its hard to give advice. I would feel fine staying the course with a BB ER offer, though.
Evercore had 29 ranked analysts (behind only JPM and BofA) while Jeffries only had 10, so I’m not sure how you can say Evercore has “few” top analysts compared to Jeffries
Please don't post on the ER forum again because you clearly know fuck all about it. UBS is an excellent equities shop esp in Europe with many ranked analysts (in 2016 they had the highest #1 ranks...), whilst Evercore are very very strong in the US. Barclays is only strong in the US.
RBC and Jefferies are below all these 3, bar a few select sectors.
Disclaimer: I do not work for any of these firms
Bulge brackets will not stop small cap coverage imo. I think opposite could occur actually for a few reasons
Breadth of coverage will matter under mifid as mutual funds will be consolidating brokers
HFs will become more important clients for BBs and small cap coverage is relevant and valuable to many of these funds
Some BB IB groups are attempting to gain share by moving down market and even down cover (for IPOs) in some cases. This necessitates more small cap coverage.
Lots of good comments on this. Agree with most all of them. It’s bad for everyone on sell side. Bulge guys I think will give away Research and drive as much volume on their desks as possible as volume will beget more volume. Long only and mutual funds will end up trading only naturals with the street and the rest through the machines. The bulge brackets will keep Research and just pay less and will preserve banking revenue. Agree they will go down market to get more banking. The big firms will use mifid as a way to try and drive the small guys out of the market. Consultants will increasingly communicate to us buy side firms that they should pay for research out of their income statement which will make it worse.
Corrupti nostrum sint blanditiis. Fuga reiciendis nesciunt fugiat illo. Eos qui perferendis qui et.
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