Wall Street research analysts have suffered rounds of layoffs, big pay cuts, and accusations that they routinely lied to the investing public. Now there's a new worry -- that their jobs are being shipped overseas.
Investment banks like Morgan Stanley, Goldman Sachs Group and Citigroup Inc. are mulling the benefits of shipping research jobs to countries like India, where salaries for business graduates are as little as 10 per cent of those in New York and London, according to financial consultants and Wall Street sources.
Morgan Stanley plans to experiment by hiring stock analysts in India to support its US and European analysts, while Deutsche Bank AG has contracted Irevna Limited, a London-based consultancy that specializes in outsourcing research to India, according to sources familiar with the situation.
Last week, JP Morgan Chase & Co said it will hire 40 junior stock analysts and other research staffers in its Mumbai office this year as a way to expand research in a weak market.
"Every bank on Wall Street will eventually use the cost benefits offshore to maintain their research businesses," said one executive at a major investment bank.
Financial services consultants and banking executives say that offshore operations are part of broader efforts to bankroll research departments in the face of shrinking revenue from equities underwriting and trading businesses and a tighter regulatory environment.
For now, the idea is for offshore analysts to collect data, do basic number crunching and create finance models, while production tasks like editing can also be moved abroad. The aim is to inexpensively provide support for more senior analysts, who would have more time to finish research reports and meet clients.
In time though, offshore hires could translate into fewer research posts in the United States and Europe. Once the operations are up and running, it will be a natural progression to shift more complicated tasks abroad, say financial services consultants.
Wall Street is looking to examples such as General Electric Co, which shifted software development and back office jobs to India under former Chief Executive Jack Welch. Today, Indian engineers are contracted for tasks as sophisticated as analyzing the materials and design of new jet engines.
In the research world, consulting firms are leading the way. Firms such as McKinsey & Co and AT Kearney Inc have shifted the bulk of their research divisions to such places as Mumbai and Chennai, keeping US and European offices staffed mainly with division heads who need to have regular contact with clients.
"If GE can do the advanced research over there on its next generation of jet engines, then there's no reason why that can't be the same case for financial institutions," said Stefan Spohr, a principle in AT Kearney's financial services division.
The potential opportunities have given rise to a cottage industry of consultants with Indian connections. Fast-growing firms like Office Tiger, Smart Analyst Inc and Irevna help to provide third-party research out of India.
Spokespersons at Merrill Lynch, which has been outsourcing technology services to India for three years, and Citigroup, which has offshore operation in India for its commercial bank, said there are currently no offshore research initiatives.
A spokesman for Goldman Sachs also said it had no plans to hire offshore analysts. Spokeswomen at Deutsche Bank and Morgan Stanley had no comment.
A report recently completed by Kearney shows that the idea of relocating jobs has taken hold.
US banks, brokerages, mutual companies and other financial services companies are planning to relocate 500,000 jobs offshore, or 8 per cent of their work force, over the next five years.
So far, research accounts for a small fraction of that, but Andrea Bierce, an AT Kearney managing director who oversaw the study, said that financial analysis and research is fast becoming an offshore favorite.
In a Kearney poll, executives were asked which business processes were being shifted abroad. The No. 2 answer was analytical and technical services.
"If it can be done by sitting at a desk in front of a computer, then it can be done abroad," said Bierce.
Shifting services offshore is not without its risks. Some executives have complained that communications with home offices and cultural differences have led to inefficiencies, said consultants.
Another concern in India are the geopolitical tensions with Pakistan and the threat of nuclear conflict, said one Wall Street executive.