As Bank Industry Analysts Lose Jobs, Serious Blogs Take the Forefront

by: Reggie Middleton November 27, 2008 | about stocks: BAC / C / GS / JPM / MER / MS    

Reggie Middleton

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

The most successful analysts are being laid off on Wall Street. The Street has always thought of the analysis as a loss leader for M&A sales and brokerage commissions. After Spitzer tightened down on the industry, they tightened the budgets even more. Now, with this unprecedented downturn combined with the limited ability of the firms to use the analysts to sell other services (the Spitzer conflict of interest argument), the analytical staff is considered expensive dead weight that does not add directly to the revenue line.

If you thought the accuracy of the sell side was bad in the past (see Blog vs. Broker, whom do you trust!), you ain't seen nothin' yet. With conflicts of interest still deeply ingrained in the culture and business models, the top flight (cost?) quality talent fleeing or getting fired, and budgets cut to the bone marrow, expect accuracy and analytical quality to drop considerably below mean - and mean was not very high to begin with.

Luckily, a certain entrepreneurial investor who never was shackled by the hypocritical, recursive conflicts of interests that plagues The Street has decided to share his proprietary research and lo and behold... I really think his research is better!

See Bank industry analysts fall prey to the shrinkage:

Goldman Sachs (GS), Citigroup (C) and Bank of America (BAC) have recently axed analysts who covered some of their competitors. The analysts were particularly prominent within the industry because they were often quoted in Wall Street news stories and invited to meetings with bank executives. They were the voices who questioned executives on earnings calls, and they were often the ones casting most doubt on their field.

Now they join a growing pool of bankers and traders losing their jobs just before bonus time, with little hope of new employment any time soon.

"A lot of these analysts did not believe that they could get sacked," said Gustavo Dolfino, president of WhiteRock Group, a head-hunter in New York. "But just writing about the market doesn't mean you're making any money for the firm, that's why these analysts are losing their jobs."

Goldman was the first major bank to sack its banking analyst, William Tanona. Tanona, laid off Nov. 7, had worked there since 2005, when Goldman recruited him from JPMorgan Chase (JPM) . He was one of the first analysts last fall to turn negative on Citigroup and to warn about Merrill's problems with its bundles of mortgages...

...In a note to clients, the bank, which is cutting 10 percent of its work force, said it was suspending coverage of his companies, which included Merrill Lynch (MER), Morgan Stanley (MS) and Citigroup.

...Last week, Citigroup laid off Prashant Bhatia, who covered a range of brokers and asset mangers like the Fortress Investment Group, Merrill Lynch and BlackRock. Earlier this fall, Bank of America dismissed Michael Hecht, who covered investment banks. A Bank of America spokesman declined to say whether it had begun eliminating overlapping workers among its ranks since it agreed to acquire Merrill Lynch in September.

Banking analysts were not singled out. Goldman, for instance, dismissed a dozen other analysts who covered other industries, including newspapers and industrial companies. In some cases, banks may choose to lay off senior analysts and promote lower-cost workers into their roles.

Anybody looking for analysis can always come to me. I won't even try to push the securities of a company that I just underwrote or try an convince you to allow me to churn your account.

Related Articles

This article has 11 comments:

  •  
    Nov 27 08:49 AM
    Reggie, I could not agree more. There is a real need for independent and "forward looking" research. There is too much bullshit being reported by sell-siders anyway. Just take a look at GE for example. Recently the Barclays analysts suggested we should call the Paulson TARP plan the "GE plan" as he believed it was the end of the conglomerate problems. Today, too many sell-siders just repeat what they hear on conf calls and don't even try to model companies. All they do is try to match management's guidance. I'll stop it here. You get the point.
    Reply | Link to Comment
  •  
    Nov 27 08:50 AM
    ANALysts. The first two syllables says it all.
    Reply | Link to Comment
  •  
    Nov 27 09:38 AM
    They should all be fired and their corrupted employers should all go under because nobody needs these thieves who work only to get small investors out of their money , period.
    Reply | Link to Comment
  •  
    Nov 27 10:44 AM
    Anyone with real interest in putting their savings to work and increase savings and wealth, should be doing their own analyses, or at least understand the analyses.
    Reply | Link to Comment
  •  
    Nov 27 11:47 AM
    Reggie, I thought you were done wth Seeking Alpa man? Your subscriber part of your blog is kind of whack, I keep trying to log in to no avail. My email is prescient11@yahoo.com if you can help.

    For those who don't know Reggie he's the best around, GGP is his crown jewel. He also called HIG and the other insurers and the downfall of the IBs. His analysis is the best. I shouldn't have closed my short on GGP in the $20s, and you shouldn't have closed it in the teens,wow!

    Congrats on all the success man, you've earned it.
    Reply | Link to Comment
  •  
    Nov 27 01:01 PM
    Reggie - I haven't been reading SA recently, and found this post from a link on another site. I have, however, been reading your blog and really like your stuff. Thanks, and please keep up the good work. Oh yeah, Happy Thanksgiving, too.
    Reply | Link to Comment
  •  
    Nov 27 07:12 PM
    Right on, Reggie! Too many analysts are just sell-side shills. Blogging is the future for analysts, and those hedge funds that survive this shakeout should have their analysts start blogging to build a following for their strategies.
    Reply | Link to Comment
  •  
    Nov 27 07:37 PM
    Does anyone really need an investment banker? The whole industry is a con and make work job for Ivy League Frat boys who were taught they are never wrong.

    Google went public alone and it looks as thought they did quite well. As a CFA who has been on both the buy and sell sides, I never found in house sell-side security analysts anything more than pimps for the Investment Banking peddlers.

    What an immoral industry that adds absolutely no value to our economy. Do markets really have to revalue companies on every tick? Its can be fun (if you win) but is nothing more than an overrated casino game.

    It is amazing that some believe the stock market is a discounter. Makes for silly academics but no real investor believes that. What were we discounting in 2007 when we were entering a recession in February and market took off?
    Reply | Link to Comment
  •  
    Nov 28 08:25 AM
    Thanks for the support, all. Prescient, if you put your email in html or text in a public forum like this, you will get spammed to death by spambots. In addition, seeking alpha is not the best place to get support for issues on my site. Use the "contact me" link in the top or side menus in the future.

    I admit the site's design has been outgrown, but I hired a team to work on it. The changes should be evident starting some time today. It appears that you have not subscribed. Everyone must subscribe as well as register, even if you pick a free subscription, it must be done. Try it, and if you still have problems use the "contact us" link. I will make sure your problem is solved.

    I will be release two big forensic reports some time today - one of which is a potential bankruptcy candidate. I think it will be worth your time to stop by if you have a paid subscription. As usual I will be putting the free stuff out as well.

    As for Seeking Alpha, I am trying to create a working relationship.
    Reply | Link to Comment
  •  
    Nov 28 10:29 PM
    I will be release? When will you "be release"?
    Reply | Link to Comment
  •  
    Dec 05 11:52 PM
    Thanks Reggie, I will. I think you've got another paid subscriber! You finally got me. Maybe you can tell me how stupid I am for being an ETFC long in this environment. argh.
    Reply | Link to Comment
More Comments on C ยป
Top Rated Comment Streams:

Numbers are net rating-

See all Top 100 »
More by Reggie Middleton

Investment Resources
Money Management
Research
Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Consumer Credit
Insurance
Investment Banks
Major & Intl. Banks