Both J.P. Morgan and Deutsche Bank have had a go at indicating the worst jobs in finance in recent weeks, but both of them seem to have missed the true nadir. Although things might not be going well in some areas of macro trading and although revenues from issuing investment grade debt are in decline, this is nothing compared to the pain awaiting all who work in research.
So suggests McKinsey & Co., the strategy consulting firm. In a new report, McKinsey says equity research departments face huge layoffs in the coming years. - While equity sales and trading headcount has been cut 40% since 2011, equity research headcount has been cut just 11% and this discrepancy is about to hit home.
The immediate cause is MiFID II, the set of regulations due to be introduced from January 3rd 2018. Among other things, they say that asset managers must pay for research separately from trading commissions. When asset managers become aware how much they're spending on research, the expectation is that they will shave $1.2bn off their research spending, leading demand for research to plummet. Although the rule explicitly applies to Europe, its effects are expected to be global as banks restructure research departments around it and asset managers scrutinize spending across the world. Fixed income research will be affected too.
What's a researcher to do? The only real solution is to become the kind of top ranked individual who produces the kind of research that asset managers will be only too pleased to pay for. Even then, however, you'll need to ensure you're working for the sort of player that will thrive in the new landscape. McKinsey says these fall into one of four categories: big execution led businesses with a broad equities offering (there'll be two or three of these); execution leaders with a more minimal research offering (there'll be two or three of these); regional champions producing research relating to their own markets; and successful independent research providers. You probably want to avoid universal banks: McKinsey says they'll be challenged by the high cost of supporting their research team in the new world.
In the meantime, Bloomberg says big banks are already changing how they charge for research. Deutsche Bank has already pitched clients a metered, “pay as you go” approach. J.P. Morgan is quoting a $50k flat fee for basic access to fixed-income analysis.
Separately, the Financial Times says Credit Suisse wants to bolster its leveraged finance business in Europe, where it thinks there is room to grow. The implication is that there might be some hiring, although CS doesn't say as much. Earlier this year, it enticed five of its senior leveraged finance bankers to stay after they contemplated moving to Jefferies.
UBS hired Natalie Horton, the former head of securities lending at Deutsche in the U.S. (The Trade News)
Citigroup has poached Alison Harding-Jones, a veteran UBS dealmaker, as part of a push to strengthen its M&A business in Europe. (Financial Times)
Deutsche Bank hired Jonathan Rose from BMO Capital Markets for its Americas metals and mining team. (Nasdaq)
J.P. Morgan is looking for additional post-Brexit office space in Dublin and Amsterdam. (Bloomberg)
Frankfurt, Paris, Amsterdam, Vienna, Lyon and Strasbourg all want to house the European Banking Authority (EBA) when it moves out of London after Brexit. (Reuters)
Since leaving Barclays, Roger Jenkins has worked at the Brazilian investment bank BTG Pactual and set up an advisory firm in Dublin, but both of these roles have quietly fizzled out. (Financial Times)
You can now study a Blockchain course at Edinburgh University. (TheMemo)
This is what happens when you graduate from France's top business school. (HEC)
Man sent home from work for wearing shorts in 30°C heat returns wearing a dress. (Indy)
Older men have geekier sons who are more aloof and have higher IQs. (Guardian)