nordea transfers all sell-side research to standard & poor's
Nordea has taken an unprecedented step into the world of independent research by outsourcing all of its equity research to Standard & Poor's.
The move, which has taken the industry by surprise, is in response to a growing view that sell-side research is commercially suspect and of doubtful use in adding value to a portfolio.
Geoff Hawksworth, managing director of Standard & Poor's in Europe, said: "This is the first time that a bank has contracted to buy all its traditional equity research from an independent provider. It is a bold and imaginative approach to tackling a problem that many investment banks face - how to transform the economics of their research function and provide their clients with genuine added-value research."
The view at Nordea is that the arrangement was a response to growing pressures in the equity research market - including constrained margins, regulatory developments and low credibility - which are putting the spotlight on the future of in-house company research. Frans Lindelow, head of equities at Nordea, said: "The Nordic market is a microcosm of the dilemma facing the wider equity research industry. There are over 650 analysts worldwide following Nordic stocks, all of them essentially producing the same sort of research and not all of them adding value for clients. Transferring the function to an independent provider improves the credibility of our company research, makes the economics of the research more transparent, and enables us to focus on generating strong investment ideas for our clients."
Under the five-year deal, Nordea will cease to provide stock research internally and instead will buy independent research from Standard & Poor's. Nordea will close its present Nordic research department, currently employing some 30 professionals, and establish a new integrated research unit, Alpha Research Team, with in-house sector specialists, quantitative analysts and strategists.
Standard & Poor's, in turn, will set up a 20 strong equity research team in Stockholm specialising in Nordic companies, to supplement its existing global team of over 100 equity analysts. It will provide Nordea with research and recommendations on 200 Nordic stocks, in addition to Standard & Poor's existing coverage of over 1,500 European, US and Asian equities.
Julien Hardwick, head of European equity operations at Standard & Poor's, said: "Banks realise there is a gap between what investors are looking for and what the sell-side is offering. The market for equity research is labouring with over-capacity, continuing questions about quality, increasing regulatory constraints and declining margins. Many banks are taking a long, hard look at their research function and we expect others to follow Nordea's path."
However, other companies are presently expanding sell side research coverage. For example, Janus has expanded its companies coverage from 650 to 1,000 stocks this year and will increase it again to 1,200 in 2005. It has also increased its analysts team by 30% in the past four years and is hoping to add seven research analysts by the end of year.
Neil Jenkins, spokesperson for Janus, said: "We undertake research in-house to be ahead of Wall Street thinking and to know a company better than others."
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