Wall Street Shedding Investment Analysts
THE number of job r'esum'es arriving on Don Eller's desk is clearly on the increase, according to the director of investment research for Prescott, Ball & Turben Inc., an investment house based in Cleveland. Many, he notes, are from long-time analysts currently working with established brokerage houses, underscoring the turmoil and downsizing taking place in the overall investment industry since the 1987 market crash. The investment analyst - who evaluates stocks, bonds, and other financial instruments, usually for large investment houses or research organizations - is increasingly endangered. That's particularly so in Manhattan, where most analysts work. Many have been fired. Some investment houses have slashed staffs.
The decline in the number of analysts is expected to have profound implications for investing in general. Case in point: Smaller emerging growth companies may find raising capital impeded by a lack of analytical research, according to veteran New York analyst Perrin H. Long, Jr., with Lipper Analytical Securities Corporation.
Some investment sectors are not being covered as much as in past years.
According to the 15th annual survey of investment analysts by Nelson Publications of Port Chester, N.Y., the number of research analysts has fallen almost 20 percent since 1987 - from slightly over 3,000 just prior to the October crash to about 2,500 at the end of 1989.
Something else occurred during that period, experts say: There has been a greater willingness by companies to challenge the work of the analysts. Still, few seem bent on going as far as financier Donald Trump did recently. Mr. Trump took sharp issue with a respected analyst for Janney Montgomery Scott, an investment house. The analyst had suggested that Trump's Taj Mahal casino in Atlantic City, N.J., wouldn't do quite as well as Trump had been maintaining in the media. The analyst, for whatever reason, was let go.
Mr. Long recalls how many bright young people on Wall Street first began to gravitate into analytical work back in the 1950s, sort of the beginning of the era of modern research. The rush into research, says Long, was synonymous with the movement into equities by large institutional investors, such as pension funds. The problem today, says Long, is that most investment houses ``on a full-cost accounting basis are no longer making money on institutional accounts.'' So, to offset costs, firms are letting analysts go. Kidder Peabody, according to the Nelson survey, has cut its equity research staff by 17 percent, the most of any major house. Some houses, such as Dean Witter, have actually increased company research coverage, while still cutting staff.
Junior analysts, not surprisingly, have been the first to be shown the door, with some unhappy consequences. Many younger analysts, say research people, tend naturally to seek out slightly off-beat or seldom-explored companies. They also tend to be keenly aware of market trends.
Ironically, the rise of high-speed computers has also facilitated dismissals. ``Why have analysts looking at the entire steel industry, for example, when 30 percent of the companies [in steel] may be of non-investment grade potential,'' says Kenneth Janke, president of the National Association of Investors Corporation (NAIC), based in Royal Oak, Mich. Instead, says Mr. Janke, a firm could consolidate by shifting analysts out of underperforming industries into other sectors or companies.
Janke, who is a past-president of analysts in the Detroit area, believes that in the future more individuals will do their own investment research. Some 70 percent of the 135,000 members of the NAIC already do, he says.
While staff reductions have been pronounced in Manhattan, research staffs outside New York may be growing. Minneapolis-based IDS Financial Services, for example, continues to expand, company officials note, now having four economists, 20 equity analysts, nine fixed-income analysts, and six people doing quantitative work. Another sector showing growth, according to the Nelson survey, is firms active in overseas investing.