robwebb2k

The last two weeks have kept most in the finance community glued to the headlines trying to figure out which earthquake will hit next. Mainstream media analysis has been focused on global economic issues and with numbers like $700B being thrown around, the $5.7B investment research industry, which has felt a substantial impact from the debt crisis and the Wall Street shakeup, has been largely overlooked. Nearly 3,000 equity research professionals have already been directly impacted.

Brokerages by Research Market Share (Greenwich Associates, pre-shake up)

1. Citi
2. Merrill Lynch (~800 equity analysts)
3. Lehman Brothers (~600 research professionals)
4. JPMorgan (~400 senior equity analysts)
5. Bear Stearns (~90 senior equity analysts)
- Morgan Stanley (~600 research professionals)
- Goldman Sachs (~444 research professionals)
- Credit Suisse
- UBS
- Bernstein
- Robert W. Baird
- Pacific Crest
- Simmons & Co.

Sandy Bragg at Integrity Research reported that JPMorgan took on just one third of Bear Stearns’ analysts post-merger and I’ve heard that some analysts were pushed out of JPMorgan in the process. Apparently all of the Bear analysts found positions before the merger went through, but with Lehman Brothers merging with Barclays, Merrill Lynch merging with Bank of America, and Goldman Sachs and Morgan Stanley facing inevitable downsizing it is unclear how many equity analysts will remain employed at bulge bracket firms and subsequently how many the buy-side, independent, and alternative market firms can absorb thereafter.

Perhaps more importantly, the management of these firms have a chance to not only reshuffle the deck, but also to change the game they are playing which may not bode well for loss-leading segments like traditional equity research and equity sales. This coupled with probable buy-side consolidation and a continued trend toward internalized research at the larger funds may accelerate additional change within the industry.

When the smoke clears, the competitive landscape within the investment research industry will be drastically different. The bulge bracket firms will produce less research and there will be more seasoned analysts on the buy side, at independent shops, and hanging their own shingle. Platforms aggregating distributed expertise will become even more instrumental in connecting researchers with product and industry experts.