The equity research of Wall Street banks which can loosely be listed as Goldman Sachs, Morgan Stanley, JP Morgan, Bank of America, Citigroup, Barclays, Credit Suisse, Deutsche Bank, UBS, Jeffries etc. has been under scrutiny for a long time as being biased and not independent of the mergers and acquisitions, M&A advisory and equity underwriting business.
I have read and continue reading Wall Street Banks' equity research. I would say on a whole stock market index direction level it is quite good, since, perhaps on the aggregate, macro level the bias and pressure from M&A and equity research is less.
The individual stocks' equity research of Wall Street investment banks is less good. The reason, according to my opinion is twofold:
1) Most of the equity researchers are trend followers or the price action is one of the main determinants of the equity research recommendations. This has its business logic, of course. Due mainly to the money creation of leading central banks and innovative technology companies most technology companies' stocks prices and market capitalisations all over the world have ben rising since 2009 until November 2021 and the general market due to the high technology industry weighting has followed suite. So analysts, to actually produce accurate stocks prices forecasts must or are compelled to issue predominantly buy recommendations. Because, otherwise their buy side clients would be unhappy and the equity research analysts can loose their jobs
2) The second determinant of the relatively mediocre quality of equity research is the inherent conflicts of interest with the Mergers and Acquisitions advisory, equity underwriting, especially Initial Public Offerings and junk bond underwriting business lines of the Wall Street investment banks. The Mergers and Acquisitions advisory, Equity underwriting, especially Initial Public Offerings and junk bond underwriting business lines seem to still be, according to many media reports and anecdotal evidence exerting pressure on equity research analysts in Wall Street banks to issue favourable equity research ratings, that is give out a BUY rating for Mergers and Acquisitions companies clients, IPO and junk bond clients. It seems, according to media reports very difficult for equity research analysts to have a successful career if they do not yield to the pressure of business line.
Mike Mayo's career is a case in point.
One has to be brave, but when billions of USD are at stake, many people are either greedy or fearful.
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