By all accounts, the streets of the City of London should by now be filled with ex-equity researchers proclaiming their availability for work. After all, MiFID II has been in place for over 10 months and there are suggestions that the number of analysts covering small companies fell by 50% in the first half of this year. It's strange, then, that one equity research headhunter says big banks' equity research teams are unexpectedly intact.
"The huge cuts to equity research teams that were anticipated following the implementation of MiFID II in January 2018 haven't happened yet," says Zaki Ahmed, director of equity-focused Financial Search Limited. Instead, he points out that banks have been busily engaged in replacement hiring for equity research teams in 2018. Researchers themselves have been leaving in fright and finding jobs on the buy-side or in investor relations, but big banks have been quickly filling in the gaps.
How can this be? With asset managers now being charged for research, and research spending allegedly down by $300m this year, researchers' days are surely numbered. Accordingly, Deutsche Bank, Macquarie (who's research head Shai Hill left in September) and Charles Stanley have all done some trimming. At the same time, though, Citi, Canaccord and Barclays have all been hiring.
J.P. Morgan offers a few clues on researchers' unexpected longevity. In the call accompanying the bank's third quarter results, CEO Jamie Dimon and CFO Marianne Lake cited "really great research" and "great research" respectively as reasons for the bank's increased equities market share. Research has become a differentiator. It undoubtedly helps too that equities sales and trading revenues are up 18% this year, according to the Financial Times.
Will it last? The signals are mixed. In a New York conference five months ago, J.P. Morgan co-President Daniel Pinto said initial indications were that buy-side spending on research would fall by 30% post-MiFID II, but that J.P. Morgan also expected to benefit from the consolidation of market share in leading players. Pinto added that the bank had already seen reduced demand for written equity research and increased attendance at conferences, but that the bank would wait 'several quarters' before changing its business.
Those quarters may soon be up. Ahmed, for one, detects something in the offing. "I sense the cuts are coming either this quarter or in the first quarter of 2019," he says. "Banks tend to cull pre-bonuses and equity research jobs look vulnerable."
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