Why did it take so long? A merger of the big two Swiss banks, effortfully avoided in the 2008 financial crisis, was put together over the course of just a few days. Several London mid-cap brokers have now sold themselves to larger European banks after two decades of independence.
All want to access a longer investment duration: UK Brokers to get through the current dearth of deals, Credit Suisse to manage an immediate loss of market confidence. Of course, the reasons for Credit Suisse’s corporate event are unique – and there was political will to avoid having a limited confidence event get out of hand. The UK mid-cap market has been injured by its exposure to a weak economy without the benefit of the 70% overseas earnings and weak sterling that support the FTSE100. After a decade of annualised returns near 6% during which the number of new issues fell 40% a fall of 20% last year puts paid to IPOs near-term and the mid-cap model relies on primary issues.
One reason that buyers have stepped in is that balance sheets at most large banks are at their healthiest for several years, after a combination of repairs and steeper yield curves, and regulators support consolidation as a path to stability.
At some point there will be fewer private bank and asset management investors in Zurich: but buyside consolidations always take time. Meanwhile adding mid-cap coverage means adding clients. The UK, like Switzerland, has a large pool of retail money that wants to stay invested in the home currency. As a result, funds in a UK mid-cap wrapper can find a market that will never exist for, say, Spanish or German mid-caps. These changes mean more clients to call, not fewer.
The implications for research? Once more bank research teams will see exits and shrinkage, probably without any immediate revenue benefit, while the demands on their time are growing.
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