Jul 27, 2009
July 27 - Small U.S. equity research firms may gain market share from their larger rivals through next year, helped by the dislocation of some large investment banks and the exodus of talent to these smaller firms amid the financial crisis, according to a survey of buy-side analysts released on Monday.
Small firms' market share jumped this year, but large investment banks, such as Banc of America-Merrill Lynch Securities, continued to dominate as top research providers of U.S. equities for buy-side analysts, research group Greenwich Associates found.
The Connecticut-based financial consulting firm's survey of 863 buy-side analysts showed that Banc of America-Merrill's research is the most widely used for U.S. equities, while J.P.Morgan Securities' research ranks a close second.
According to the results of the Greenwich Associates' 2009 U.S. Equity Analysts Study, Barclays Capital, JP Morgan and Sanford C. Bernstein share top honors for overall quality of their research. Barclays and Bernstein were also among the top six research providers in terms of market share, along with Citigroup and Credit Suisse.
But the fall of Bear Stearns and Lehman Brothers and the merger of Merrill Lynch with Bank of America Corp (BAC.N) created significant disruptions in the supply and quality of the research used by institutional investors in U.S. equities, Greenwich said.
This year, "bulge bracket" firms captured 68.5 percent of U.S. buy-side analysts "vote," down from about 73 percent last year, while their smaller rivals' -- mid-sized brokers, regional firms and sector specialists -- market share jumped about 5 percent to about 29 percent this year, the consulting firm said.
"The gains achieved by these smaller providers did not necessarily come at the expense of individual bulge bracket research platforms," John Colon, a consultant at Greenwich, said.
"Rather, sudden consolidation disrupted existing research relationships, some of which were recaptured by other bulge bracket firms while others were won by smaller providers and specialists," Colon added.
Last year, a large spate of layoffs and pay cuts at the big investment banks caused many analysts to set up shop in smaller firms or start their own independent firms.
Based on trends seen this year, the "bulge bracket" firms may continue to lose share in the buy-side analyst vote this year through 2010, while mid-sized, regional and specialist, and, perhaps to a lesser extent, independent research providers will see gains, John Feng, a consultant at Greenwich, said.
The recent slew of top talent hires by small firms could mean that at least some institutional analyst relationships will follow them to the new firms, Feng said.
Prominent banking analyst Meredith Whitney, who shot to fame after correctly predicting much of the sector's carnage and a Citigroup Inc (C.N) dividend cut, left Oppenheimer & Co this year to launch her own firm, Meredith Whitney Advisory Group LLC.
In a similar move, veteran consumer-products analyst Bill Pecoriello, who was most recently with Morgan Stanley (MS.N), launched his own firm, ConsumerEdge Research LLC, in April.
Other notable analyst moves this year include, veteran banking analyst Mike Mayo, who left Deutsche Bank (DBKGn.DE) to join Asia-focused CLSA's U.S. broker affiliate Calyon Securities, and former Goldman Sachs Group Inc's (GS.N) banking analyst William Tanona, who joined London-based financial advisory firm Collins Stewart.
Last year, Michael Hecht, who covered securities firms such as Goldman Sachs and Morgan Stanley at Banc of America Securities, left the big bank to join JMP Securities, a lesser known brokerage. (Reporting by Tenzin Pema in Bangalore; Editing by Jarshad Kakkrakandy)