World Economy

JPMorgan Issues Stark Warning to Wall Streeters

JPMorgan Issues Stark Warning to Wall StreetersJPMorgan Issues Stark Warning to Wall Streeters

Wall Street stock analysts are about to find themselves on the chopping block, and only the best will survive. That was the hard truth Mary Erdoes had for a room full of analysts Thursday at the BancAnalysts Association of Boston Conference.

Erdoes, the head of JPMorgan Chase’s $1.9 trillion asset and wealth management business, was asked about impacts from MiFID II—Europe’s sweeping financial regulatory changes that will be implemented in 2018—and painted a future in which asset managers chop their budgets and only pay for research from top-tier analysts, Yahoo Finance reported.

“On the buy side, the larger firms will absorb the costs and figure out how that cascades its way through,” Erdoes said. “It probably means they’ll tighten up a lot on what they spend on sell-side research, which is why the two go hand in hand.”

Firms are planning to make cuts because MiFID II requires asset managers pay for research separately from commissions for trading execution, whereas it previously often came bundled with other products.

Most of the largest asset managers, including JPMorgan, are absorbing the multi-million dollar costs and funding the research internally, rather than passing the costs on to their customers. “I only want the five best of you.”

This is bad news for stock analysts, as it could result in a 50% “compression” in research budgets, according to Credit Suisse. That means less money to go around.

Erdoes plainly laid out what happens next: “I was dealing with 10 of you; I don’t want 10 of you anymore, I only want the five best of you.” She noted that the sell-side research industry had already contracted massively in recent years, with investment banks spending “50% of what they used to spend.”

“So you’re the precious few. The rest of them are not here. Maybe this room was five-times bigger before, I don’t know,” Erdoes told the audience of analysts, many of whom would presumably not be there the following year given the looming cuts.


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