Europe: Bulge bracket banks top rankings

Large banks have once again dominated the ranking of top European analysts at a time when the pace of cutbacks in research departments seems to have slowed down.

In a year characterised by a steady comeback of global equity markets as well as a fading eurozone crisis, UBS came out as the top broker in Europe with 16 analyst awards in the FT/StarMine ranking.

The Swiss bank, which ranked third in the previous year, beat Deutsche Bank Securities and BofA Merrill Lynch Global Research to second and third place respectively.

The bulge bracket banks' success highlighted how they are punching above their weight in research. Global banks employ a quarter of the world's analysts but account for a third of all StarMine awards worldwide and even 44 per cent in Europe.

The large banks' success in the ranking comes despite much of the sector having spent the past few years adjusting downwards the size and scope of research departments. In the past year, global bulge bracket banks cut the number of analysts 4 per cent and the number of stocks covered 1 per cent, says Raj Shah, head of StarMine sell-side research at Thomson Reuters.

Bankers say most lenders remain committed to research despite being faced with margin erosions in equities trading as it rapidly moves on to electronic platforms. This year also brought some respite as equities trading revenues bounced back amid rising stock markets and as investors switched their portfolios out of bonds and into shares.

Bankers say a previous trend to scale back is already starting to reverse. "We are coming out of a period in which bulge bracket banks have cut back on research. In the past 12 to 18 months, we have even seen banks selectively adding staff," says Mike Stewart, global head of equities at UBS.

In fact, top-rated analysts have become as sought-after as ever. "'Senior investment professionals on the buyside want to speak to a top three analyst, not someone with less traction - they need someone who understands the company in the context of the global sector, both its key drivers and its exposure to macro factors," Mr Stewart says.

A number of top analysts have even decided to go it alone in recent years and set up as independent researchers. Examples include ex-Jefferies analyst Anthony de Larrinaga who set up WYT and Gareth Evans, who used to work for Canaccord and Investec and who started Progressive Equity Research.

"These examples highlight the focus on providing deep and detailed industry analysis or niche and specialised research on one sector," Mr Shah says.

As markets rallied in the past year, analysts' ability to pick the best stocks rebounded in all regions. European analysts did better than their US and Asian peers, recording above-average returns for their clients at levels last seen before the financial crisis.

But the rumblings of the eurozone crisis were still reflected in their recommendations. At 14 per cent, European analysts had twice as many bearish calls as their US and Asian counterparts.

At UBS, its success in the rankings comes at the same time as it has refined its approach after a client survey last year.

Mark Stockdale, head of European securities research, said the survey found that clients want in-depth, value added and thematic research. "It is no longer acceptable for an analyst to just say 'this is what the company does' - clients can find that from a number of data providers. They really want an analyst who can provide insightful analysis of the sector globally, challenge consensus, and debate the key thesis of the investor."

For the Swiss bank, this means to have strong economic research from which to frame single stock insights and recommendations from. The analyst's views on the sector and individual company are then regularly scrutinised both by a global investment recommendations committee as well as regional equivalents to see if it chimes with UBS's overall view of markets.

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