Market view | Investment banking
offered to institutional clients. However, they are expected to capture the lion’s share of business as the commission pool continues to shrink. The Greenwich report showed that global banks with investment and research services grew their share of the commission pot from 66% to 70% in 2011. In the UK specifically, it increased from 63% to 68% in the same period.
This is at a time when the overall institutional bucket shrank over 25% on a pan European basis during the period from the first quarter of 2009 to the same period in 2012. Predictions are that it will be flat for the year although it could be under if soft equity trading which has marked the first six months continues into the second half. According to Jay Bennett, consultant at
Greenwich, the contraction in equity commission and broker trading revenue is the result of three market developments: de-risking of institutional investment portfolios, the economic recession in Europe and the European sovereign debt crisis, the last of which has prompted institutions to keep money on the sidelines, limiting trading activity.
A sharper knife The concern is that the downsizing, headcount reduction and consolidating trading desks that
has taken place over the past year has been too modest compared to the drop in trading revenues and a more drastic approach may be required. “To this point however, they’ve been pruning around the edges,” says Greenwich consultant John Colon, “But if things continue on this track, at some point they’ll have to move from giving up fingers and toes to arms and legs.” The two main reasons why European and global banks have resisted deep cuts is because trading and research capabilities in European equities are viewed as important sources of market knowledge and intellectual capital that is leveraged in capital markets origination, mergers and acquisitions and other high-margin businesses. The other is that few want to raise the red flag of defeat. “People will stay the course in equities much longer than you might expect based strictly on profitability,” says Bennett. “To some extent, pulling back from European equities is admitting defeat in investment banking generally.”
Miranda Mizen, principal and director of equity
research at Tabb Group notes, “The commission wallet is shrinking and one of the biggest challenges facing banks is that they are looking at the same areas at the same time. They need to be able to stand out and differentiate themselves
“They need to be able to stand out and differentiate themselves and the question is how they are going to do that economically. There is a lot of navel gazing going on but they have to start making the difficult decisions and focus on their core strengths while exiting the weaker areas.” Miranda Mizen, Tabb
Best Execution | Autumn 2012 37
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84