How do the research departments generate revenue for their firms? Is research just put out for the sole purpose of attracting new clients to the IB side of things? Also how do they decide which firms to cover and which to ignore in a given sector? I’m assuming its based on how much business they’ve gotten on the banking side recently or who they’d like to get business from? Thanks
Well if it is a research department of a big bank, most likely they’ll cover the biggest companies in the sector (by market cap? by sales?). As for generating revenue, I think they feed ideas to S&T and in turn, those guys generate the revenue for the bank. I’m not an expert on this though, just a guess.
Research is a cost center. We do all the work so the firm can bring in sales/trading and Ibanking revenue.
simple, buy first, then issue a buy recommendation, and sell there is no such thing as Chinese wall
Three ways to get paid: 1) The research analyst is a facade designed to pump the stock on behalf of the company being covered (for the benefit of in-house investment banking team that covers that particular sector). This is supposed to be illegal under the global settlement of 2003, but still happens fairly regularly. 2) S&T commissions placed by buyside firms that do business with the investment bank or brokerage based on the research the firm provides. Some firms require you to do X amount in commissions before you can speak with the firm’s analyst, some don’t. 3) Get paid by the company to write research reports about said company. This has to be disclosed. There are not many firms that do this. Taglich brothers is one. A company may pay them like $20K or whatever a year to write the reports, which are supposed to be objective (allegedly). Prior to the Spitzer crack down, it used to mostly be #1. These days, there is less M&A, and the bankers are more discrete, so it’s harder to generate revenue off #1, so firms are pushing harder to monetize research through #2. #3 will never be a significant force in the industry because it is fraught with conflicts of interest. Coverage is mostly determined by whichever combination of #1 and #2 will generate the most revenue for the firm and/or analyst.