Opportunities are looking up as research business migrates back to big investment banks from the independent research firms that got an artificial boost from 2004 through the middle of this year.
It's well known that independent research never lived up to the hype it gained from the 2003 global settlement between 10 investment banks and then-New York Attorney General Eliot Spitzer. Those 10 firms spent a total of $430 million buying research reports from independent companies and distributing them to asset managers between September 2004 and July 2009. Now, the big banks are quickly regaining ground in research sales, the Financial Times reports.
"Investment banks such as Goldman Sachs and JPMorgan usually win over independent research, no matter how revered or specialised they are," says the FT. "The reason is that, in accordance with US securities laws, the investment banks can bundle research in with a range of services the independents do not offer, such as trading execution, IPO allocations and access to management."
A spokesman for a trade group representing 85 independent research firms calls it an "oligopoly." He grouses that an allocation of shares in an investment bank's hot IPO is tantamount to handing free money to an asset manager's portfolio.
It's hardly surprising that such institutions as UBS and Deutsche Bank aren't rushing to renew deals with independent research firms now that the Spitzer settlements have expired. The expiration proved doubly painful for independents because the recent banking crisis was already squeezing their revenues. Independent researchers' sales to asset managers dropped 18 percent in 2009 to $1.67 billion, compared with a 10 percent decline for investment banks' research sales to $9.7 billion, according to Integrity Research Associates.
The few thriving independents tend to specialize in niches such as biotech and anti-trust law, the FT notes. The story also mentions three niche research shops launched since 2006 by star equity analysts who left investment banks: Ivy Zelman in homebuilding, Dana Telsey in retailing and consumer goods; and Meredith Whitney in financial services.
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