Wall Street stock analysts are predicting doom – for their own profession. Of course, technology – and its meteoric impact on investment banking – is to blame, and research analysts will have to adapt or die.
However, the tools of the trade – Excel, Word, email, PDFs, Bloomberg chat and a phone – haven’t really changed in more than a decade, with slicker client relationship management (CRM) systems the lone exception, according to a group of Bank of America Merrill Lynch stock analysts.
It certainly doesn’t help that the majority of firms that pay for investment research – primarily actively managed mutual funds and hedge funds – are experiencing downward fee pressures like no other period in their history. Many active managers are unable to consistently outperform passive funds such as index-tracking exchange-traded funds, and investors are shifting their investment dollars accordingly, leading to outflows at the very firms that provide the demand for research that keeps sell-side analysts gainfully employed.
Related phenomena are hitting Wall Street traders extremely hard, with ETFs, quant funds, high-frequency trading firms and even some traditional asset managers increasingly moving toward trading automatically, electronically and via other lower-margin methods, which the BofA Merrill analysts highlighted in that same research note.
It is the industry’s worst-kept secret that computers are now doing the jobs that human stock traders used to perform, causing well-paid trading jobs to evaporate into thin air. It used to be that equities traders were the primary desk facing cuts, but now bond traders are increasingly feeling the effects as well.
The Bank of America analysts wrote:
“Some of the recent hires into Head of FICC electronic trading positions have come from an equities background where electronic trading has already been normal for many years. In some cases the banks are even trying to use the same architecture to create the equities and FICC algorithms, further reducing the number of duplicated staff and systems needed to support those algorithms.”
It may be high time for analysts and traders alike to learn to code – and fast.
Separately, Nomura is experiencing an exodus of talent from its investment banking division, including several managing directors who recently left to join competitors. This follows a significant rounds of layoffs that the Japanese bank made in April – reducing a business that had 225 employees to 150 bankers – combined with stinging compensation cuts for those who were spared the axe.
Gregg Fatzinger, previously the head of consumer retail for the Americas at Nomura, has left the bank, but he has not yet announced his landing spot. Colin Cropper, previously the head of the Americas automotive franchise, has joined Royal Bank of Canada. Perhaps most painful of all for Nomura, Jason Fertig, previously the head of the healthcare investment-banking group in the Americas, and Matthew Upton, a former managing director in the global-technology investment banking group, were both poached by archrival Mizuho Financial Group.
Bloomberg did report that Nomura is looking to hire selectively to boost fees from cross-border mergers of midsize companies, so perhaps this is a “darkest before the dawn” scenario.
A Credit Suisse investment banking team dishes to a TV news crew on what is driving all the M&A deal activity and what sectors are most likely to witness consolidation. (CNBC)
“This series of videos that we’ve prepared for you are to give you a window into what it’s like to be here, to scare you away if you’re not the right kind of person, to potentially attract you if these ideas — if this way of being — is attractive for you,” said Greg Jensen, the co-CIO of Bridgewater Associates. (Business Insider)
How one of the most famous convicted insider traders in the world is supporting the American entrepreneurial spirit. (Forbes)
After blowing a bunch of money supporting the Remain campaign, Morgan Stanley has fired several senior managers, including the former head of the London-based private equity team, as the bank plans to abandon pursuit of leveraged buyout deals that use investors’ funds to acquire, re-engineer and eventually resell European companies. (Sky News)
Wells Fargo vs. Citigroup – which one are you betting on? (Market Realist)
Pay is rising at the fastest rate since the financial crisis – but not for financial services professionals. (Business Insider)
EU officials have accused former European commission president José Manuel Barroso of “irresponsible” and “morally reprehensible behaviour” and circulated a petition to forfeit his pension for “bringing the European Union into disrepute” by joining Goldman Sachs. (The Guardian)
Why do business executives—people who already possess status and wealth—commit financial crimes? In part because they rely on intuition. And, it turns out, their instincts stink. (Bloomberg)
Being the largest bank in the US is a huge advantage for JPMorgan. (Seeking Alpha)
Why do central bankers love to use silly metaphors to describe unorthodox policy tools? (WSJ)
A previously abandoned 130-year-old skyscraper was converted into a tony hotel for bankers and buy-side executives on business trips to New York. (Business Insider)
Advice for financial services professionals who want to change careers but “don’t have time.” (Forbes)
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