Bye Bye Bear


New York – Equity research has begun its consolidation phase with the purchase of Bear Stearns by JP Morgan Chase. Bear’s highly ranked research department will be merged with that of JP Morgan Chase. This marks the first exit of a bulge-level equity research group during the current bear market, but not necessarily the last.

Integrity has forecasted consolidation and declines in spending on sell-side research. Assuming 55% of commissions are allocated to research (perhaps a bit generous) we project spending on sell-side research declining from approximately $4.7 billion in 2007 to $4 billion by 2011. We expect most of the decline from the consolidation of 2nd and 3rd tier brokers, but we also envisioned a few bulge firms packing in their research during the next downturn.

We didn’t expect Bear to pack it in, however. After all, they had built out their research department during the last bear market, in a smart, countercyclical move. This was the foundation for the department’s success over the last few years. Then again, things don’t always play out the way you expect.

Long Tail of Investment Research

Overall, we expect a bar-belling of the market, with some consolidation at the top of the curve (viz, Bear Stearns), and the majority in the middle of the curve, which is already occurring. The long tail will also have consolidation among the fundamental research providers, which we forecast to also decline over the next three years. The aggregate spending on alternative research will increase because of the high growth of other types of alternative research, including primary and specialized research providers.


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