By the standards of equity research, Rochdale Securities' senior vice president of equity research, Dick Bove, is doing rather well. A top ranked US banking analyst, and regular guest on CNBC, Bove is known for his controversial views (he likes Citigroup and BofA) and is one of the few people to have spotted the financial crisis before it made itself commonly known. As equity researchers go, Bove should be a poster boy for his chosen career.
Sadly not. Scratch the surface, and Dick is not happy. Equity research is not what it was.
"It's becoming rarer and rarer to find someone who will pay for research," says Bove. "It's not like you go out and say, 'This is the product, this is the price for the product, and if you want the product you can pay me.'"
Instead, Bove says research operates in a weird market in which the buyer is king and the seller is strangely submissive. "You give away research for free for six months to a year in the hope that someone will pay you," he says. "And in many cases they won't. They take it for free and refuse to pay - there are people that we've dealt with in Britain who think it's their right to get the product and that we have an obligation to send it to them."
The problems with equity research and traditional equity sales and trading were illustrated by last week's Goldman Sachs results. The firm made of much of the fact that while trading velocity is increasing, margins on equities are being compressed. In the process, researchers are in danger of being squeezed out.
"Traders can decide that the profits they make are due to the wonderful job they're doing for execution, rather than the advice they're getting from research, and therefore the money doesn't filter through. No one in their right mind wants to go into a business where the payment trail is so convoluted," Bove confides.