Tag Archive for meredith whitney

When the Buy Side Attacks…

What happens when the largest asset management firm, Blackrock, decides to formally clear trades on their internal trading floor? While the buy-side has always held the upper hand on the sell-side, particularly the largest asset managers, this is a big deal, b/c it signifies a further separation of traditional Wall St. from sweetheart fees. It used to be that investment managers would push their transactions to investment banks as a reward for research or other services (kind of a you scratch my back, and I scratch yours).

“BlackRock is the world’s biggest asset-management firm, a $3.45 trillion powerhouse that is Wall Street’s largest trading partner, set to pay investment banks $1 billion in fees this year.” – Bloomberg 12/9/10

However, if BlackRock succeeds in pushing a sizable portion of their transactions between their internal managers on their internal trading floor, it will help ‘mark to market’ the services being provided by the investment banks. This is a great thing for investors and for the markets at large, but will likely hurt the sales and trading operations at the banks, and further push Sell-Side Research to the brink of collapse.

The key question is, if Sell-Side Research cannot generate trading fees for the banks, what has it become other than a large cost center?  It already has been pushed off investment banking fee generation, due to conflict of interest (pushing a company through research to get their IPO, bond of equity issues is definitely full of moral hazard). The mass migration of ‘name brand’ analysts to the buy-side has been going on at a fairly alarming rate (think Rick Sherlund, decorated analyst of $MSFT and other tech companies at $GS, who left in 2006 or Meredith Whitney, decorated analyst of the $C, $JPM, $BOA for $CIBC, who left to start her own independent research outfit)…

Another stake was driven into the coffin of the Sell Side research business this morning. It’ll be interesting to see how the banks respond…