Sector View: Equity research thrives on Wall Street, struggles in Europe

First the good news: in 2004 equity analysts were back on the staffing agenda. Recruiters working in the sector report a strong year. 'There has been a significant amount of hiring', says James Heath, at Greenwich Partners in London, 'At times, we were as busy as during the dot.com boom.'

Banks have been building teams. In London ABN Amro recruited over 20 analysts to replace a similar number let go at the start of the year. In Paris, SG hired several analysts to boost its brokerage capabilities. In the U.S., Jeffries & Co., Banc of America Securities (BAS) and Piper Jaffray went on the analyst trail, adding about 10, 10 and 15 people respectively.

'Piper Jaffray, Bank of America and Jeffries have been hiring aggressively,' says Richard Lipstein, a principal in the New York office of Boyden Executive Search. 'In some cases the aim has been to boost research rankings.'

Scratch the surface, however, and the picture is distinctly less rosy. Commerzbank and Deutsche Bank are making widespread analyst redundancies. After a poor third quarter for equities, others may yet do the same. A report by Starmine, an analyst rating service, suggests analysts are a dying breed: the company says the number of equities analysts in Western Europe fell 13% in 2004, to 2,691, the lowest level since 1999.

Equity analysis on Wall Street: Boutiques lead the way

Conditions are better across the Atlantic. According to Starmine, the number of U.S. equity analysts leapt nearly 20% this year.

Stuart Mclean, European sales director at Starmine, says independent boutiques have swollen the U.S. analyst population: 'There has been an upsurge in the number of people leaving U.S. houses and setting up on their own.'

They have Eliot Spitzer to thank. As part of the settlement of conflicts of interest at U.S. securities firms, Spitzer required banks to subsidize independent research. The number of boutiques has soared as a result. There are now around 300 according to Investorside, the independent research association, and many are hiring staff.

'We've added around nine analysts this year', says John Eade, president of New York-based Argus research and founder of Investorside.

Life has been harder for analysts in Wall Street banks. While Piper Jaffray, BAS and HSBC have hired across the board, vacancies elsewhere have been for junior staff only. 'There has been a pick up in second and third positions in sectors like semi-conductors and software,' says Richard Lipstein at Boyden Executive Search.

Bonus prospects are not great. Lipstein forecasts a 5% rise at most. He says an associate equity researcher on Wall Street can expect a total package of $125,000 to $200,000; senior analysts banks should hold out for $250,000 to $350,000.

London: Get in good with the sales guys

Recruitment agencies in London say their phones are buzzing with calls from jobless analysts. But few can be of any help. As on Wall Street, vacancies for equity researchers in the City of London are mostly for junior staff. Many of the redundant analysts are just too experienced.

'There is significant demand for analysts at the associate level', says James Heath of Greenwich Partners, 'Between 2000 and 2002, banks cut their equity research teams to the bare minimum. They have been replenishing those losses with juniors.'

For analysts with a few years' under their belts, jobs are harder to come by. Paul Tapp, an equities headhunter at Longbridge, says senior hiring has dried up: 'Quarter one and quarter two were good, but poor equities results in quarter three mean there is no need for researchers right now.'

He said banks are reducing headcount in unsexy sectors, namely motor vehicles, software and paper products.

Independent research boutiques are unlikely to come to the rescue. The independent boutiques sector in Europe remains undeveloped and relatively unprofitable. The European Association of Independent Research Providers has no more than 11 members.

None of this bodes well for equity research bonuses in the City. 'Right now everything is very tight,' says Tapp, 'Bonuses will depend on how much loving researchers get from the sales guys.' Another leading recruiter in the sector predicts salespeople will be none too amorous: 'People are expecting bonuses to rise 10-15% but most heads of research are saying it will be the same as last year.'

Junior staff may be best paid: Heath says associates can expect base salaries of 45,000 to 80,000, plus maximum bonuses of up to 200-300%. Tapp says most VPs in equity research can expect static total packages of 200,000 (on a base salary of 60,000 to 90,000); Managing directors in research may be hardest hit: according to one specialist headhunter, senior bonuses could be down as much as 20%.

Paris: Equity analysts hit by mergers

If statistics are anything to go by, Paris-based analysts have the most to fear: Starmine's research suggests they are a dying breed. Their numbers dropped more than 8% in 2004, to just 200. Since 2000, the number of French equities analysts has fallen 22%.

Starmine's Mclean says the trend is cause for concern: 'France worries me most. The contraction there has been huge.'

Mergers are to blame. Last year's merger between Credit Agricole and Credit Lyonnais led to analyst redundancies following the sale of Credit Lyonnais Securities Europe to Oddo et Cie. Similarly, overlaps meant analysts suffered in the creation of BNP Paribas Exane, the joint venture brokerage.

There has been hiring, however. Vally Colli, an equity research consultant at Vendômes Associés, a Paris-based search firm, says there is reason for optimism: 'Despite everything it has been a good year.'

Colli says the prospective privatisation of utilities such as Electricité de France and Gaz de France is driving demand for utilities analysts. Analysts specialising in the analysis of mid-cap stocks are also in demand. BNP Paribas, which has been hiring as well as firing, added Jean Pascal Brivady, formerly head of mid-cap research at Credit Lyonnais Securities Europe. SG has boosted its capability across the board.

As ever, pay in Paris is less than London or New York. Colli says an equity analyst in Paris with 5-6 years' experience can expect a base salary of €75,000 to €100,000 (52,500 to 70,000, or $100,000 to $133,000). Bonuses, which vary considerably, can be 100% plus. But Colli predicts they will be the same as last year.