Sell side research just became more of a meritocracy. A new European law with a global shadow is giving the best analysts at bulge bracket banks a potential edge over colleagues when it comes to compensation.
The rule, adopted in the EU but being put into practice globally, will require hedge fund managers and other sell side clients to pay for any analyst research they receive, rather than the old system where the general analyst pool was financed by commissions clients paid on transactions run through the bank, according to the Wall Street Journal.
The end result is that the best, or most popular analysts can command lofty prices for their services, creating a direct correlation between their revenues and their popularity.
“We’re creating a marketplace for our analysts. We’re auctioning off everybody’s time and [price] moves around depending on what’s valuable,” UBS investment research chief Barry Hurewitz told the Journal. The most popular analysts at UBS can command prices that are four to five times higher than their UBS peers.
The sudden change will have a few different ramifications, both positively and negatively. Leading research analysts, who are likely being paid better anyway, will have more room at the negotiating table when it comes to salary and bonus. However, putting market-moving research analysts up for auction will create a bidding war resulting in the haves and the have-nots.
As a result, underperforming and even middling research analysts could get the axe. Moreover, full teams that are under-performing in a particular sector could be cut outright as money management firms limit the number of providers they use. In turn, the most popular analysts could find themselves overwhelmed as banks charge clients millions for 'open door access' to them.
Separately, penetrating the walls of Goldman Sachs as a potential employee has become even more difficult. In a presentation to clients, Chief Executive Lloyd Blankfein said that 267,000 people applied for 8,300 positions in 2014. The hire rate was just 3%, down from 4% a year ago. Nearly 90% of offers were accepted.
Blankfein also, for the first time in long time, broke down the performance of its fixed income revenues, which dropped from a record $21.9 billion in 2009 to just $8.46 billion last year.
Interest-rate products accounted for about 29% of fixed-income revenue over the last five years, according to Bloomberg. Credit trading led to 25% of fixed-income revenue, and mortgages and currencies trading each led to 16% of revenue. Commodities accounted for roughly 14% of total fixed income revenues over that time, roughly half of what they did for pre-crisis.
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UBS has been hiring for its investment bank. It now pays on a par with Goldman Sachs.
Barclays to Raise Junior Banker Pay (Bloomberg)
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DOJ Wants Felony Pleas from Big Banks (NY Times)
The U.S. Justice Department apparently wants Wall Street banks to enter guilty pleas on charges they manipulated the prices of foreign currencies. The banks allegedly include: Barclays, JPMorgan Chase, the Royal Bank of Scotland and Citigroup, according to news reports.
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HSBC Deal with Prosecutors Could Be Reopened (Reuters)
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Private Equity Specialist Named Managing Director at Commonfund (FinAlternatives)
Commonfund has appointed Jack Foster as a managing director. He will work with institutional investors in the United States and Canada on custom private equity portfolios of direct funds, secondaries, co-investment and specialized fund-of-funds.
Buzz Around the Office
Waitress Gets $800 Tip (WTOV)
Sometimes, it pays to provide the right kind of customer service.
That lesson is relayed by an experience from Alicia Torrance, a waitress at Ye Olde Alpha in Wheeling, West Virginia. Recently, she got an $800 tip from a couple in the restaurant.
“I was instantly in shock,” Torrance said after getting the tip from the customer. “The server next to me ran over and I was shaking.”
The patron said his grandfather had just passed away and he was heading to the funeral.
The couple has only been in the restaurant once before, on Super Bowl Sunday, and left a couple hundred dollars for the wait staff that day.
Quote of the Day
“The three great essentials to achieve anything worthwhile are: Hard work, stick-to-itiveness, and common sense.” – Thomas A. Edison