Cash equities is not the most profitable area of investment banking. Analysts at Bernstein Research point out that returns have plummeted since 2003 and that low margin execution is now subsidized by higher margin underwriting activities.
However, if cash equities businesses aren't very profitable, you'd never have guessed it. The Financial Times reports today that BNP Paribas intends to hire 200 people over the next three to five years to strengthen its cash equities business. 100 will be in equity research, 50 will be in sales and trading and 50 will be moved across from its corporate finance unit.
Cash equities is a focus for other banks too. BarCap has been building for the past two years. During yesterday's conference call, Jamie Dimon emphasised equities in particular as an area where JPMorgan 'continues to invest'. Citigroup has also highlighted equities as an area of emphasis.
These aren't the only ones.Others, such as MF Global, Berenberg, Unicredit, Numis, Jefferies and Collins Stewart, are focused on hiring equity researchers.
For the biggest banks, the rush to build in cash equities is all about achieving scale and capturing the information from customer flows. As Morgan Stanley analysts recently pointed out, rates and credit businesses are likely to suffer most from Basel Capital rules, leaving banks focused on equities and advisory better placed under the new regulatory landscape. The rush is therefore on to develop large equity platforms and become one of the 'flow monster' market leaders.
For smaller banks, the emphasis is instead on providing a research-led service differentiated from the heavily automated services offered by the larger banks.
Whether there is space for everyone in the market is yet to be seen. For the moment at least, everyone's crowding in and cash equity professionals - researchers in particular - are the big beneficiaries.