Banks cut analyst coverage in Europe

The number of European companies covered by research analysts has fallen to the lowest level in nearly a decade, as investment banks cut costs in their traditional equities businesses, research showed on Monday. The number of analysts in western Europe is also falling, according to Starmine, an analysts rating service, which said analyst numbers had dropped to 2,691 - the lowest since 1999 - from 3,104 in 2003.
Data produced by Starmine showed that the number of stocks covered in western Europe has fallen to 2,599 this year, the lowest since 1996 and down by a fifth from a peak in 2002, when the number of stocks covered totalled 3,287.
Pressure on commissions in the equities business, as well as regulatory constraints to stamp out conflicts of interest, have forced many banks to restructure research and rein in costs.
One area where coverage has been scaled back is small and mid-cap companies.
"Coverage of small and mid-cap stocks by the big investment banks has fallen off dramatically," said Stuart McLean, European sales director at Starmine.
In the UK, home to Europe's biggest equities market, this has provided an opportunity for smaller specialist broking firms, such as Teather & Greenwood, KBC Peel Hunt and Investec, which were already focused on the mid-cap sector, to increase coverage in this area.
In the UK, Starmine's top ten securities houses by coverage includes those three as well as Panmure Gordon (part of Lazard) and Evolution Beeson Gregory.
This list is topped by Dresdner Kleinwort Wasserstein, part of insurer Allianz, followed by other leading investment banks UBS, ABN Amro and Merrill Lynch.
Citigroup, which ranks seventh, makes up the top ten, according to Starmine.
The reduction in UK mid/small cap sector coverage means that many companies have only one analyst following them - Starmine estimates that 311 UK companies are followed by just one analyst, while 119 firms are followed by two analysts.
Blue chip stocks, such as drugs group AstraZeneca and mobile phone company Vodafone, are still widely researched, with 30 to 39 analysts covering them, according to Starmine data.
Other regions, including Latin America, emerging Europe, Middle East and Africa, have also seen research cutbacks that have resulted in a drop in the numbers of companies covered.