Impact of MiFID II rules results in analyst exodus at major bank

US banking giant, Bank of America Merill Lynch (BofAML), has already lost almost a fifth of analysts from its London office this year, as Europe’s MiFID II MiFID II rules begin to hit investment bank research teams, prompting analysts to jump ship to asset management houses.

At least 24 analysts, including seven senior analysts, have left the US bank’s 130-strong UK research department. Staff turnover rates at the US banking titan have risen to 20%, whereas typically they are around 15% at this time of year, according to the FT.

The mass exodus has arisen as firms get to grips with new MiFID II legislation introduced in January, which stipulates that research can only be made available to those specifically paying for it. This is known as ‘unbundling’. Previously, banks and brokers tended to ‘bundle’ research costs with the fee they charge asset managers for executing trades.

Following the introduction of the European MiFID II rules, fund managers have reduced their research consumption and trading commissions paid to banks and brokers have significantly fallen.

Head of European Chemicals Research at BofAML, Stephanie Bothwell, is leaving to join Blackrock’s European Equities team and Mark Manduca, Head of Transport, Travel and Leisure research at BofAML will join Citigroup as a Managing Director.

The majority of junior analysts are also leaving to join asset management firms.

Investment bank analysts are under increasing pressure to bring in revenue generating business. For example, investment fund client calls and meetings, which have to be paid for under MiFID II.

However, the demand for these interactions has been far lower than banks anticipated, according to Neil Scarth, a Principal at Frost Consulting, a research adviser to Asset Managers.

“The revenue models of the cash equity (departments) of the banks post-MiFID II look more challenging,” he said. “The asset management alternative may look a little more predictable.”

As a result of such challenges, some commentators predict UK sell-side analyst numbers could halve by the end of the year.

However, other experts counter this prediction, stating it is still too early to assess how business models will cope under the new MiFID II rules, due to the fact research cost negotiations are still underway.

Research prices have already fallen significantly. This has prompted the Financial Conduct Authority (FCA) to announce a review of MiFID II following concerns large banks are offering lowball, ‘predatory pricing’ for research, putting pressure on smaller providers.


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All figures correct as at 30.06.2020.