The largest of the company’s asset management and investment banks are planning to reduce their budgets for undertaking analytical studies of 30% or $5 billion, according to Financial Times (FT), these data led consulting company Quinlan & Associates following a survey among 30 international companies on asset management and six investment banks. Costs are planned on the background of the upcoming implementation of new rules that increase transparency in the evaluation of funding research in this industry.
Reducing the cost of study is another blow to the industry, which is experiencing a drop in profits. As the FT notes, in the past year, major European and North American banks have announced a reduction in total of around 100 thousand jobs, while this year about the plans to conduct mass layoffs reported, BofA, Goldman Sachs, Societe Generale, BNP Paribas and Barclays.
The interviewed banking and investment analysts estimate the industry expenditures on research, approximately $15 billion per year. According to them, their cuts will cause a further reduction analysts, and potentially the elimination of entire research units. In addition, it will make radical changes in the operations of banks.
The head of the Quinlan & Associates Benjamin Quinlan does not see this as a problem. “It makes no sense to spend so much research, he said. — Investors do not need to 30 brokers gave them the same report. According to him, the reduction of banking analysts happen, but not to the same extent and not with the speed with which required. “Without a doubt, banks will have to continue to cut costs. Less valuable Analytics will be dismissed,” he said.
To date, the average portfolio Manager receives daily an average of 500 analytical surveys, said the Director of the research firm BCA Research Brijesh Malkan. “Getting rid of an excessive amount of information — maybe that’s what they expect,” he said.
Malkan noted that asset managers had a Facebook for about 200 records per week. For the last three months the number of these reports decreased by half. “If you’re a low level analyst in the telecommunications team at Goldman Sachs, maybe you should quite quickly start to look for work,” says Malkan.
The most serious reductions in spending on research planning to hold European investment banks and companies, says Quinlan & Associates. They are going to cut them in half.
In Europe such actions are caused by rules that require companies to provide investors the budget is clearly stated, what is the value of research. Rules has developed this year by the European authorities in the framework of the forthcoming update of the EU Directive “O markets in financial instruments (MIFD II). Previously, the company included the payment of research into the category of “complex services” which included, for example, activities and bonds. The new regulation has forced investors to wonder what the real value of research.
An unnamed senior official of one of Europe’s largest companies asset management told the FT on condition of anonymity that the company has already cut spending on research. “At least large, global players with greater purchasing power has already started to pay less,” he said.
The new regulation will require companies to pay more attention to evaluation research, which the newspaper notes is likely to contribute both to reducing costs for companies and lower prices for investors.