curious what anyones thoughts are on the following article - is it as bad as they make it out to be? Laid-Off Sell-Side Analysts Weigh Options Outside Research Jun 25, 2009 13:32:11 (ET) By Jessica Papini Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)–More than 1,000 sell-side analysts have been laid off in the U.S. in the past year, and many will have to find new careers outside research. The financial crisis has led to lower commissions, spurring layoffs at companies ranging from Morgan Stanley (MS) and Goldman Sachs Group Inc. (GS) to middle-market securities firms. The demise or merger of securities companies also has added to the number of analysts seeking new jobs. Integrity Research estimates that 15% of sell-side analysts have been laid off over the past 12 months. “The majority of laid-off analysts are not going to find jobs back in research,” said Sandy Bragg, chief executive at Integrity Research Associates LLC. “It is an extremely difficult environment for analysts.” Going from the sell side - where analysts work for brokerage and securities firms - to the buy side is difficult now. Many hedge funds imploded in the past year or are laying off analysts as well. Additionally, traditional money-management companies, also under pressure from declining markets, generally aren’t hiring analysts. Analysts have some options for staying in research, such as setting up their own independent firms, looking for work at smaller banks or boutiques that happen to be hiring, or finding a job in a role similar to research, such as investor relations. For example, well-known banking analyst William Tanona was laid off from Goldman Sachs last year, and last month joined London-based boutique firm Collins Stewart. Other analysts have decided to break free from research positions at large firms and start their own firms, including William Pecoriello, a longtime consumer-staples analyst at Morgan Stanley who recently launched ConsumerEdge Research. At their own firms, they may take a non-traditional approach to research - some may customize work for clients, or not boil their research down to buy or sell recommendations. But many analysts will need to leave the industry; junior analysts in particular will have a difficult time finding a job, said Bragg. While the numbers aren’t broken out in the U.S., a recent European Thomson Reuters Extel survey found that 1,200 sell-side analysts lost their jobs over the past 12 months. According to the survey, there were 5,119 equity analysts in Europe as of the beginning of June, down 15% to 20% from the year earlier. Steve Kelly, global head of Extel Surveys at Thomson Reuters said: “While the survey was conducted in Europe, it is indicative to what is happening globally, and similar experiences are taking place in the U.S. and Asia.” Some believe the U.S. industry might be hardest hit. Daryl Jones, managing director at independent research firm Research Edge, said he believes U.S. analyst layoffs have been more than 1,000, maybe even twice that many. The U.S. sell-side analyst market was larger and overbuilt compared with Europe, due partly to the huge growth in hedge funds over the past few years, Jones said. Commissions in the U.S. are declining at a similar magnitude to commissions in Europe, Bragg said. Commissions are down 30% to 40% at some buy-side firms, meaning less money getting doled out for research. “The business has clearly shrunk and there are not enough chairs for people,” said Richard Lipstein, managing director at executive-search firm Boyden World Corp. in New York. While research isn’t going away, cost pressures have weighed on the business. “Research is still a viable, needed profession, but it is clear that a lot of analysts will have to leave the business,” he said.
Interesting story. I have no idea how bad it is, but this certainly doesn’t sounds promising in the near term.
like many things it all varies by firm, I’m guessing a fair number of those layoffs came from companies that went totally belly-up like Lehman or got swallowed by other firms like Merrill-BoA, Wachovia-Wells, Bear-JPM where there were redundencies.
That’s a good point
to be honest the real front office group that probably is due for major trimming is Sales, at least research provides a true value added service if they’re doing it right (more in-depthed analysis of companies and more importantly, access to company management teams), whereas Sales (at least most of them) are essentially regurgitating what research is saying and are glorified party planners wining and dining clients. Not saying Sales should be scuttled, but if you’re gonna right-size compensation in the front office, Sales HAS to be the first place to cut imo.
xabat77 Wrote: ------------------------------------------------------- > to be honest the real front office group that > probably is due for major trimming is Sales, at > least research provides a true value added service > if they’re doing it right (more in-depthed > analysis of companies and more importantly, access > to company management teams), whereas Sales (at > least most of them) are essentially regurgitating > what research is saying and are glorified party > planners wining and dining clients. Not saying > Sales should be scuttled, but if you’re gonna > right-size compensation in the front office, Sales > HAS to be the first place to cut imo. The point of the research is to sell it to make money. Can’t have a sell side without a sales force. It is THE key function. I guess in short I disagree that sales does not provide a ‘true value added’.
My firm laid off 20% of sell-side research and it was a stable, boutique doing well. I do not know a single person who has found a job in research except for a few MDs who have enough money to start their own firms, ie work for free. I know a few people at other firms who have been laid off and found new positions in research, but most of them took a big cut in comp. To be honest I think this article understates how bad things are in research at least in the near-term.
fine, but all sales is doing is acting a conduit, my point is its easier for Research to migrate more towards a sales function (and lots of SS analysts are leaving blast voicemails in the morning to Buyside) and arguably the best analysts are also the best “salesmen” as well in terms of convincing others their stock thesis is right. Sales serves a role, but it certainly takes a backseat to research and trading imo and comp needs to reflect as such when the sellside is seeing commissions drop. Obviously as a concept, “selling” is critical to making money in SS, I just don’t think “salespeople” are the critical unit for this function in the front office.
i completely agree with xabat. equity sales is worthless. my problem with sales people is that they essentially jack up the price for research without adding anything – they are merely gate keepers. they do not provide an essential function. the only reason sales people exist is because the industry is too stubborn to change to a pay per click type of model for access (or some other model that actually makes sense). at some point, someone on the sell side will realize that paying people half a million dollars a year to act as a phone switch board between clients and research analysts is absurd and will find a way to fix this inefficiency. honestly, i think you could pay a reasonably smart (read: not retarded) secretary $35K a year to do the same function.
On another note, I feel bad for all of the people who had the misfortune of plain bad timing trying to get into the industry now, as well as people who got chucked. This recession will be the end of a whole lot of Wall St. careers. There are always younger, hungrier people coming up behind you – fresh grads out of school, etc. If you get booted off the Street, it can very difficult, and sometimes impossible, to get back on. Bummer.
I agree with jayjay that, if anything, it is even worse out there than this article says. In Europe we have had a major meltdown at UBS and nearly all the big US brokers have gutted their operations. At the bank where I work, we consider ourselves “lucky” because we only shed 20%. I know a colleague who got canned and spent six months (thank God for generous European severance) looking for another job in research in several different countries and ended up with nothing. I was also looking for alternatives for nearly six months given the rumors circulating but found every door closed. I think there is pretty much a universal hiring freeze out there right now. The only people I have seen get hired are relatively senior people who got canned from a top tier broker and find a less prestigious company to go to. The tier two broker is of course thrilled to say “so and so came to us from Merrill Lynch” or whatever. The moral of the story: the only way to go is down right now. I am pretty sure the picture is not much happier in the US, although it is probably not as sclerotic as Europe. R.I.P. 2009.
this explains my lack of responses for my equity research applications. its understandable.
Why does the sell side need analysts? I don’t get it. I wouldn’t trust sell side analysis due to the vested interests. I wouldn’t trust research from people who can be fired for issuing “sell” ratings. And I wouldn’t want to be one of those analysts either.
DiehardValueInvestor Wrote: ------------------------------------------------------- > Why does the sell side need analysts? I don’t get > it. I wouldn’t trust sell side analysis due to > the vested interests. I wouldn’t trust research > from people who can be fired for issuing “sell” > ratings. And I wouldn’t want to be one of those > analysts either. They needed them in the past to pump banking relationship stocks for M&A purposes. Obviously, that activity has been reduced (though not eliminated). Now they pump IPOs and stocks of companies expected to make secondary offerings / companies that the brokerage has underlying ownership in (such as through warrants, for example). This happens pretty regularly, which is sad. If you remove the unethical activity, it’s not obvious why the sell side has analysts. Theorhetically, they can monetize research through contact with the buyside, but it’s becoming harder and harder to do this I think. There just is not much (any?) value add to most sell side research. This is why you are seeing firms like Shi-tty Group enforcing a $500K minimum annual commission threshold to get access to analysts. A lot of firms have been cracking down on this, but Citi seems to be the worst (I guess they really need the income!).
I just left research last week after being an associate for 2 years, for a great analyst I must add. I left voluntarily as I already had another job on the buy side lined up. Research isn’t about research, it is about selling and only selling, it isn’t about being honest about ratings. The only thing that the buy side trusts the sell side for is as an information conduit. You have a sell side analyst covering 15 companies and a buy side analyst responsible for 75+. The buy side analyst depends on the sell side analyst to be a conduit for info, that is about it because they cannot stay up with 75+ companies. The buyside knows that ratings are a joke, they discount 95% of what analysts say. They know the game, don’t think they are naive. It is so funny that so many of you think that equity research is different from sales, that is laughable, research is sales but it isn’t called sales. Analysts are on the road marketing or are in the home office making 20+ calls a day to the buy side, if that isn’t sales what is? You guys want to feel superior to the S&T staff, but what function of a bank has a major say as to whether an analyst gets hired, it is the S&T boys. Commissions are down and frankly I doubt ER will recover. It will always be there, but it will be smaller and the compensation will never be what it was like in the past. I have no idea why so many of you guys are dying to get into equity research unless you have no idea what actually goes on and how the game works.
“but what function of a bank has a major say as to whether an analyst gets hired, it is the S&T boys.” its goes both ways, as Research usually has a say in which new mid and senior level salespeople and traders are brought in too.