Bulge Brackets Losing Ground in Research

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Equity analysts take note: equity research is one more Wall Street sector where mid-sized, regional and specialty firms are taking market share from bulge-bracket institutions.

Turmoil at big banks, in conjunction with the departure of several name-brand analysts, helped smaller equity research providers boost their share of the business over the past year, according to a Greenwich Associates survey of 863 buy-side analysts released this week.

The share held by mid-sized broker-dealers, regional firms and sector specialists jumped from 24 percent in 2008 to about 29 percent this year, the survey found. Meanwhile, bulge-bracket firms' slice of the research market dipped for the first time in three years, from 73 percent to 68.5 percent.

The shift stems from both supply "disruptions" created by bankruptcy and mergers among large sell-side institutions, and an exodus of top research talent both to smaller institutions and newly-launched boutiques.

Marquee Analysts Who Jumped Ship

Meredith Whitney, widely acclaimed for a series of prescient bearish calls on the banking sector while at Oppenheimer & Co., left this year to launch Meredith Whitney Advisory Group. Former Morgan Stanley consumer products analyst Bill Pecoriello launched ConsumerEdge Research in April. Other prominent moves include banking analyst Michael Mayo's jump from Deutsche Bank to Calyon Securities, and banking analyst William Tanona leaving Goldman Sachs for Collins Stewart.

"Based on trends we are seeing this year, it is entirely possible that the bulge bracket will continue to lose share in the buy-side analyst vote in 2009-2010 and that we will continue to see gains among mid-size, regional and specialist providers, and - to perhaps a lesser extent - among independents," says Greenwich Associates consultant John Feng. "In particular, layoffs and compensation reductions around year-end 2008 sparked an exodus of talented analysts from bulge bracket firms, and many of them landed at smaller shops or opened their own independent firms. We assume that at least some institutional analyst relationships will follow."

The third major category, independent research providers, held steady at 2.7 percent of the buy-side analyst research vote. That group's share has stagnated since 2007, after benefiting for few years from a 2003 legal settlement that obligated bulge-bracket firms to purchase independent research for their clients. The settlement expired this month.

Bank of America-Merrill Lynch held the largest share of any single provider in the Greenwich survey.

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