Sell-side research drop part of longer trend of decline
The number of investment bank research analysts has fallen by 10 percent since 2012, as tighter regulation and falling profits have forced financial institutions to cut their teams of economists, bond strategists and stock pickers.
The number of analysts working at the world’s 12 biggest investment banks fell to 5,981 last year, according to new numbers from Coalition, a data provider on the industry. That is down from 6,282 at the end of 2015, and 6,634 at the end of 2012, when Coalition began to collect the numbers.
The profitability of sell-side research has been declining ever since the dotcom bust of 2001, when accusations of biased research led to tighter use of the rules around using analysts to drum up investment banking business.
Then, after the financial crisis, cost-conscious banks started cutting research department staff – because they made little direct contribution to earnings.
Incoming EU regulations are expected to deepen the research cull, as money managers that operate in the region face requirements to pay banks directly for any research they consume.
Currently, research is largely funded through commissions on trades. Some asset managers are therefore bulking up their own analysis departments and many plan to cut spending on outside research.
While these new regulations only apply in the EU, many of the bigger US asset managers are likely to follow the same path. A survey of 30 global investment groups and investment banks by Quinlan & Associates last year indicated that research budgets would be cut by 30 per cent.
‘It’s going to get worse before it gets better,’ says George Kuznetsov, head of research at Coalition. ‘There is a lot of overcapacity that will be resolved in the coming years.’
Coalition collates its data from research reports published by many of the biggest banks, such as JPMorgan, Deutsche Bank, Barclays, Goldman Sachs, Morgan Stanley and HSBC, but many smaller brokerages have also made substantial cuts.
