Richard Bove, a banking analyst with Rochedale Securities LLC, is expecting a bleak year for investment banks and brokerages, and suggests that financial advisers can expect less support from their parent firms and will see fewer opportunities to sign lucrative deals with competitors.
“The advisers not cutting it are gone,” Mr. Bove said. “I also think the bigger producers won't get the 12 or 18 months' commissions upfront to move to a new firm anymore. I think those deals are out the window.”
The key issue, Mr. Bove said, is that companies don't see a turnaround in this economy. Between the slowing U.S. and European economies and the still-unclear impact of regulation on the big banks, they are all looking to cut costs. “If they thought that things would improve in 2012, they wouldn't be making these cuts,” he said.
While he said that the big producers in wealth management operations would likely be insulated from the cuts, lower-tier advisers can expect some changes. “They won't go after the revenue producers. They tend to be well-protected,” Mr. Bove said. “But I think that in offices with subpar producers, you may see advisers fired or moved to another office.”
Advisers can also expect major cuts in research support and administrative resources as firms deal with the difficult economic environment. “When you're not making money, you don't hire new people and you don't increase your back-office support,” he said. “To protect themselves in this economy, they have to adjust their cost bases, and that means firing people and reducing compensation.”
Mr. Bove did not expect the wirehouses to try to move brokers to a salary-and-bonus structure rather than a percentage of the fees and commissions they generate. He said the last thing that the banks want to do in this environment is increase their fixed overhead costs. When
Bank of America Merrill Lynch announced its recent organizational changes, it reassured its more than 16,000 brokers that it had no plans to change their compensation structure.
The large banks have already given notice that they plan to cut payrolls and trim overhead expenses. The Project New BAC plan announced by
Bank of America chief executive Brian Moynihan this year is expected to result in at least 30,000 job cuts.
UBS AG, still smarting over the huge loss in its London investment-banking unit, also plans to cut payroll and overhead. Morgan Stanley Smith Barney LLC, which boasts the largest force of financial advisers in the industry, has bluntly acknowledged that it plans to continue culling low-end producers from its adviser ranks.
Morgan Stanley spokesman Jim Wiggins said Mr. Bove's comments about the economy forcing large banks to cut costs is irrelevant in the case of his firm. “We're already engaged in integrating two businesses and taking out costs.” he said. “That will continue.”
Calls placed to
Bank of America and
UBS were not immediately returned.
The dreary environment isn't likely to improve anytime soon, Mr. Bove said. “I think the estimates on third-quarter earnings are a little overdone on the downside, but it's going to be bad. And I don't see much upside in revenues over the next several quarters.”
