As banks like UBS cut equities staff under the combined pressures of a poor year, increased electronic trading and MiFID II (which is partly to blame for increased electronic trading), an unlikely source of resilience is emerging: equity research. Equity researchers are being spared the axe.
This, at least, appears to have been the case at UBS last week. As we observed at the time, the Swiss bank's layoffs seemed to target high touch sales traders in London and prime brokerage staff in New York. Sources say the Swiss bank's equity researchers were unscathed, although UBS didn't respond to a request to confirm this.
This may not have been entirely coincidental. Zaki Ahmed, a director at Financial Search Limited, which specialises in placing equity researchers in London, says that while other equities roles fall foul of changing markets, researchers are more important than ever.
“Research is still core," says Ahmed. "It’s tough to work in sales trading which has gone electronic, but you still need strong research to win ECM deals. If anything, MiFID II has actually strengthened the position of senior researchers. Paying clients don’t want to deal with juniors and it’s the senior guys who get client meetings, which are now chargeable. Senior equity researchers can get 400 meetings a year, while juniors only get eight or 10."
Not all researchers would agree. Citi's recent redundancies included Dave Crawley, a managing director in research sales. Figures from research firm Coalition in February suggested that 200 research jobs were cut in 2018 after MiFID II was introduced.
Even so, there may be something in the notion that equity researchers are comparatively immune to being cut. "The electronification of the business has impacted anything that can be electronified," says another senior research headhunter. "You can see that the people who came out of UBS were mostly high touch sales and trading people. A computer can't do the role of an equity research analyst and that's why they've been immune to these cuts."
At UBS specifically it undoubtedly helps too that the business has invested heavily in Evidence Lab, which provides quantitative support to researchers (and may yet prove a threat to traditional research jobs). However, even banks like Goldman Sachs, which historically relied far less on equity researchers than rivals, have boosted research teams in recent years. Similarly, Credit Suisse made senior research hires early in the summer and both Macquarie and Jefferies have been hiring researchers from Berenberg.
"We are at a dark moment with markets and Brexit and Trump and MiFID II, but banks know that if they cut researchers - particularly in complex sectors - like reinsurance, it will take six to nine months before they can either train a junor or find a new hire and be credible in the space again. They may have to suspend coverage in the meantime.
"It's much more hassle to fire a researcher than a sales trader," he adds. "With a sales trader you can just reallocate the accounts."
This doesn't mean that it's easy to find new equity research jobs now. With equity capital markets revenues down 27% year-on-year in Europe in 2019, few banks are willing to pour money into research even if they're not letting people go. Ahmed says this could change in 2020. "There’s not much hiring now due to political uncertainty, but when IPO activity picks up and things settle down you will start see a lot of hiring in research again. It’s been cut to the bone and juniorized far too much and people in the industry are aware of this.”
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