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March 22, 2006
A Sell Rating on Equity Analysts
Morgan Stanley is planning to cut 50-60 equity research positions in the U.S. and Europe. That amounts to around 7% of the firm's 800 (!) analysts worldwide. The reason? Declining equity commission income, although Morgan is saying that they also want to redirect resources to emerging markets.Some stark figures underlie this inevitable change though:
Combined research budgets at the seven biggest U.S. securities firms fell 40 percent to $1.5 billion in 2003 from 2000 as companies fired analysts and cut their compensation, according to Sanford C. Bernstein & Co. in New York.And here's more from today's Wall Street Journal:
At [a recent] investor meeting, [the co-head of of institutional sales and trading at Morgan Stanley] displayed a slide showing commission rates falling as much as 18% annually in the U.S. and 13% in Europe in recent years. He showed another slide depicting how one big customer had shifted the majority of its business away from full-service trading to cheaper electronic and direct-access trading in just one year.While institutional investors have paid a "going rate" of about four cents to five cents a share for trades executed by the firm's institutional-trading desk, they can trade electronically, and via "direct access" to exchanges and other trading venues, for less than a penny a share, according to Wall Street executives.
The result is that the effective "blended rate" for both electronic and nonelectronic trades by institutional investors had fallen to 1.45 cents in mid-2005 from 4.82 cents in 2002, according to a study by analyst Brad Hintz of Sanford C. Bernstein & Co.
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Funny thing about how U.S. Senators are able to consistently and substantially outperform professional analysts with their stock picks.
Michael, that last comment is a hell of a comment if there ever was one.
It's is certainly is funny.
Does this mean, it is a good time to buy shares of discount brokerage firms like AMTD and ET??