Integrity Researchwatch has moved to
http://www.integrity-research.com/cms/researchwatch
Please update your bookmarks.

New York - Last week, an article in the Wall Street Journal reported that Mike Mayo (a well-known analyst of banks and brokerage firms) and five of his colleagues left Prudential Securities to join the securities arm of Deutsche Bank.  According to the article, Mr. Mayo and his colleagues left because they felt that their research opinions would get “wider distribution” at Deutsche Bank than Prudential.

While it is common for analysts to move around over the course of their careers, Mr. Mayo’s departure comes at an inopportune time his employer.  Prudential is one of the many mid-tier broker-dealers that are currently getting squeezed by Commission Sharing Agreements (CSAs).  These agreements, which have been growing in popularity in recent years, allow money managers to allocate soft dollar commissions to third-party research providers (so long as those providers have signed a participation agreement with a CSA broker). 

Prior to the advent of CSAs, most brokerage firms were the exclusive providers of their own research.  This practice forced clients to execute with multiple brokers, in some instances purely for their research.  As a result, these clients may not have received the best trade execution from these “research brokers”.  With CSAs growing in popularity, however, money managers have an incentive to trade only with top-tier or specialty boutique brokerage firms that focus on trade execution.  In this competitive environment, it will be difficult for mid-tier broker-dealers like Prudential to compete.