Wall Street banks look to sell more research to companies

Goldman Sachs and Morgan Stanley are going head-to-head with the likes of Bain and McKinsey, hoping to sell research services to companies to offset big falls in demand from their traditional clients in asset management.

Historically, the reams of research and economic analysis produced by Wall Street’s army of “sellside” analysts has been targeted at hedge funds and fund managers — the “buyside” in industry jargon.

But investment groups have come under ferocious fee pressure in recent years and are trying to cut down on costs. At the same time, new regulations stemming from the EU — and which have washed over the US — have required banks to charge investors for the research they provide, rather than bundling the cost into commissions for trading.

As a result, fund managers have slashed budgets for spending on research, spurring banks to look for new opportunities in the corporate world.

Simon Bound, global head of research at Morgan Stanley, said: “The catalyst is pressure on the overall business. These are incremental dollars we didn’t think about before, that we are now trying to bring into the firm.”

The motivation is somewhat different at Goldman Sachs, where chief executive David Solomon has been aiming to build relationships with executives at smaller companies, hoping that they can boost the bank’s investment banking revenues.

Steve Strongin, the bank’s global head of research, said: “The shift is very real. There is a broader recognition that research can be useful to our clients . . . beyond the investment industry.”

Research divisions within banks often have staffing and resources that dwarf the biggest think tanks and consultancies, churning out huge amounts of industry, economic and financial research, from simple stock recommendations to machine learning-driven analyses of corporate sentiment. Total commissions paid by US fund managers, covering both research and trading, came to almost $8bn last year, according to Greenwich Associates, down from a peak of $14bn in 2009.

But the banks’ analysts are mostly trained to service that investment industry, which is looking for specific advice on trading strategies. That means the banks are having to recast their research to be more digestible to senior executives, creating research that is much broader in nature — akin to that produced by consultancies such as Bain or BCG.

But the biggest hurdle is simply getting banks’ research products into the right hands.

Morgan Stanley’s Mr Bound said: “The challenge is distribution. We’re set up to distribute research to asset managers, hedge funds and wealth managers, not corporate [clients]. But it will be hand-to-hand combat. You need salespeople to connect with those corporate clients.”

Joyce Chang, global head of research at JPMorgan, said that universal banks with large commercial operations — such as JPMorgan, Bank of America or Citi — have been marketing research services to corporate clients for a while.

However, the bank last year launched a new research product called JPMorgan Perspectives that is more thematic and targeted at a general corporate readership, often picking up topics discussed by chief executive Jamie Dimon in his capacity as chair of the Business Roundtable, a powerful lobby group.

“I do get a lot more calls from corporate clients on some issues, but it tends to evolve,” Ms Chang said. “Dodd-Frank [post-crisis regulatory reform] was a big thing for a period, and these days it is more about ESG and climate change. And everyone always wants to talk about China.”