Last week, we wrote about Deutsche Bank’s plans to integrate its credit and equity research departments and the initial departure of three senior research executives with the firm. According to the Wall Street Letter, Deutsche Bank is in the process of cutting up to 50 jobs in its U.S. equity research group as part of this effort.
In addition to the three high profile research defections mentioned in our previous posting, Tim Andrew, head of U.S. equity research left the firm last week. As a result, U.S. equity analysts will now report to David Manlowe, the newly named director of company research. In this role, Malowe will manage both the firm’s fixed-income and equity research analysts.
Most market participants expect that the bulk of these cuts will come from the ranks of Deutsche Bank’s most experienced (and therefore most highly compensated) equity analysts. These layoffs are a direct result of what the new global head of debt and equity capital markets — Anshu Jain — has already done in Europe to consolidate the credit and equity research teams.
In fact, recently the bank named new regional heads of integrated research, including Guy Ashton who will run company research in Europe, Dave Murray who will run emerging markets research, and Greg Jones and Fumiaki Sato who wil run research operations in Japan. These new directors, plus Manlowe, are expected to report to David Folkers-Landau, head of global markets research.
While we acknowledge that this move by Deutsche Bank is primarily a result of the financial woes of the German investment bank, we also must note that the high costs of producing sell-side equity research, the inability to fund research using investment banking, and the continued slide in equity commissions all highlight that Wall Street has not been able to turn their research departments into sustainable businesses. As a result, we would not be surprised to see other investment banks follow suit by rationalizing their credit and equity research departments.