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...drive to diversify doesn't only flow from the end of the global settlement. The independent research industry is influenced by plenty of other forces, too, especially a constant onslaught of new competition. "There are low barriers to entry, and with a lot of people on Wall Street out of work, it's pretty easy for an analyst to say, let me try my hand at that," says Mark Fichtel, a former president of the New York Mercantile Exchange and one of the Securities and Exchange Commission consultants who picked which independent research shops to use in the settlement...
...drifting away from retail research doesn't necessarily mean giving up on research line altogether. As institutional investors, particularly hedge funds, have taken a beating in the market and been forced to trim costs including staff, the demand for outside research has in some quarters actually increased. "There are different kinds of independent research," says Argus president John Eade. "As the settlement winds down, the focus is shifting away from ratings and reports to evolving forms, like expert networks and primary sources-meetings with our analysts, our institutional clients and different CEOs and CFOs we've gotten to know...
...bigger question may be, will the global settlement have any lasting impact-or do we lose something significant when the money for independent research stops in July? By some measures, the bias of investment-bank stock research has, in fact, changed since the late 1990s and early 2000s. Back then, only about 1% to 2% of the companies covered by banks carried a "sell" rating, according to research-tracker Investars. These days, that figure falls more in the 15% to 20% range-an indication, one might argue, that analysts are making tougher calls on the companies they cover. That probably...
...upcoming paper in The Review of Financial Studies finds that since the global settlement, research from investment banks has, in certain ways, become less biased. An analyst is no longer more likely to issue a "buy" rating when his firm is doing investment banking business with the company he's covering-as used to be the case. "It's leveled the behavior on the optimistic side, and that seems like a good result," says Leonardo Madureira, a finance professor at Case Western Reserve University and one of the paper's authors. Analysts, though, are still much less likely to issue...
...when economic growth begins to return. Other experts argue against a rapid rebound, because inventories are high for commodities such as oil, and because demand for natural resources has been so thoroughly squelched in some industries that it may not fully recover anytime soon. Francisco Blanch, head of commodities research for Merrill Lynch in London, says he doesn't expect overall demand will return to 2007 levels until 2011 at the earliest. "Over a number of years we will get back to supply constraints," says Blanch, but "it won't happen over the next six to 12 months...