Over the past 10 years the number of Bloomberg terminal subscriptions have soared nearly 50% as the number of 30-somethng hedge fund managers looking to strike it rich by charging 'yuge' fees to match the returns of the S&P also skyrocketed.
But, it looks as if wall street may have finally reached a short-term, peak-insanity threshold in 2016 as the number of Bloomberg terminal subscriptions declined for only the second time since Michael Bloomberg founded the company in 1981. According the Financial Times and research by Burton-Taylor International, the number of distinct terminals dropped by 3,145 in 2016 with the only other drop coming in the midst of the 'great recession' back in 2009 when the company lost 20,000 terminals.
Of course, at $22,000 a pop and 325,000 terminals still in operation, Bloomberg isn't going bust anytime in the near future but the drop does speak to the underlying health of the investment banks and hedge funds that rely on the terminals for trading data.
A combination of more stringent capital rules for lenders, low interest rates and a shift towards electronic trading have all weighed on the profitability of Bloomberg’s core customer base — large investment banks.
“A lot of the vendors [of financial information] are facing headwinds,” said Douglas B Taylor, founder and managing director of Burton-Taylor. “The combination of machines replacing traders where they can and cutbacks overall in financial institutions in terms of budgets has made it difficult for all vendors frankly to maintain [terminal numbers].”
Revenues at the 12 biggest global investment banks, including JPMorgan and Goldman Sachs, dropped 3 per cent in 2016, making it four straight years of declines according to Coalition research group. Job cuts of front-line staff accelerated sharply in 2016 to 2,200 from 800 the year before, the data showed. Investment banks are expecting an improved quarter as the market enthusiasm that accompanied the election of Donald Trump lifted trading profits.
As we pointed out last month, the decline could also be partially attributable to new regulations in Europe that force banks to charge for trading commissions and equity research separately. We suspect there may be less room in those I-banking equity research budgets when they find out how much those research reports are really 'worth'.
Literally no one knows the true 'value' of equity research, not even the investment banks that are selling it. Up until now, equity research has been treated as a 'freebie' given away to institutional clients in return for trading commissions but that is all about to change thanks to the European Union’s MiFID II regulations, which require asset managers to separate trading commissions from investment-research payments.
Unfortunately, at least for the Investment Banks of the world, while the cost of generating equity research may be substantial, it turns out that the true 'value', as defined by institutional clients' maximum willingness to pay for reports, may be much less. Which is shocking given the creativity required to constantly generate new variations of daily reports politely suggesting that you "Buy The Fucking Dip."
As Bloomberg notes today, the regulatory change slated to take effect next January could cost the I-banks $300 million in fees.
Asset-managers in Europe and the U.S. will probably cut more than $300 million from research budgets in anticipation of regulations aimed at rooting out conflicts of interest in the market for investment information.
That’s according to a survey of 99 fund managers and traders conducted by consulting firm Greenwich Associates, which assessed the shake-up coming to the multi billion-dollar market for investment research over the next year.
The European Union’s MiFID II regulations, which require asset managers to separate trading commissions from investment-research payments, will have a “clearly negative” impact on the amount of commission money that is spent on research and advisory services, according to the Stamford, Connecticut-based firm’s findings released Tuesday. While the budget cuts will be “relatively modest” at individual asset-managers, research providers across the board fear the new law will prompt “a substantial decrease” in buy-side spending.
But just like those crashing real estate prices in New York City, we're sure it's nothing.