Turn on your spam filters. UniCredit is on fire:
This email torrent was prompted by the bank’s decision to merge its loss-making western European equity-research unit with new partners Kepler Capital Markets (a French brokerage and independent provider of equity research). As a result Kepler will have the most extensive research coverage footprint in continental Europe (ex Scandinavia), according to the brokerage itself anyway.
Now would seem a good time to debate the pros and cons of sell-side vs. indie research, then, but before we do that one thought just won’t go away: Why did we not receive the email regarding the “cessation” of UniCredit’s European equities sales and trading operations? Maybe our spam filters are working after all.
Anyway, back to the research.
Bad news for Kepler: sell-side rules!
As the credit crisis hit, a number of top banks laid off scores of equity analysts and scrutiny intensified around the compelling force of self-interest in sell-side recommendations. As a result “an idea emerged” that the era of bulge-bracket equity research divisions manned by an army of analysts was over and would be replaced by a time when independent boutiques with low head counts and sector specialisation ruled.
But the tables may have turned again, according to recent analysis from Integrity Research Associates (emphasis ours):
… we believe that over the past few years the independent research industry has undergone a fundamental change. A few years ago regulators and clients were most interested in limiting conflicts of interest within the research industry – a trend that benefited independent research providers. Today, information control has become the hot button topic leading clients to focus on research providers’ compliance controls and practices – a development that benefits sell-side research firms.
And here’s that view in pictorial form:
Indie houses are now viewed with suspicion as “unregulated entities that generate risk”, according to Integrity. This is because some buy-side firms have implemented rigorous vetting procedures for their research providers due to the increased regulatory focus on insider trading.
Quality research is no longer enough to convince buy-side investors to purchase independent analysis, according to Integrity. Instead indies need to add formal compliance policies, procedures, and personnel to protect their buy-side clients.
But size could help. Kepler already has 50 analysts covering 460 stocks, and following its deal with UniCredit it will add coverage of an additional 48 stocks.
Please give generously… – FT Alphaville
The End of the Independent Era – Integrity Research Associates
Indie Research is Not Dead Yet – Integrity Research Associates
The changing face of sell-side equity research – Inside Investor Relations
On Sell Side Research… – Distressed Debt Investing