The Journal mentions that longtime Prudential bank analyst Mike Mayo is leaving that firm to join Deutsche Bank. Mayo has quite a reputation as a hard nosed analyst who has been bearish on the banking sector over the years, particularly on JP Morgan and Citi's strategy to build financial supermarkets that would service the consumer in all their banking, mortgage, insurance and credit needs. He was, of course, right. (Do you have your mortgage, your life insurance, your credit cards all with your bank?) Mayo made quite a splash when he decided to stick with Prudential after they meekly exited the investment banking business. He appeared in print ads, touting Prudential's independence, and vowed to speak his mind, in stark contrast to other Wall Street analysts, who are beholden to the corporate finance department that pays their salaries and implicitly predetermines their investment opinions.
Well, Mike's heading back to the dark side. But now, nobody cares. Sell side investment bank research has virtually no value at all in today's world. Aside from the fact that retail customers assume that their product is tainted by the inherent conflict of interest that supports the model, the analysts face a far more sinister foe. Commission dollars, the fuel that runs the research, sales and trading model have declined precipitously, as the buy side takes advantage of alternative trading networks, direct market access tools that allow the buy side to anonymously move large blocks of stock without the information leakage inherent in using sell-side brokers. Add to that the fact that the information that the analysts once had exclusive control over is now universally accessible, and you have a quickly depreciating value proposition.
Prudential exited the corporate finance business after they bought Volpe, Brown and Whelan back in 2000. They bought that boutique at the top of the market, and quickly realized that they had a pig in a poke. To much fanfare, Prudential announced that they would forgo the high margin corporate finance piece of the investment banking model and focus on the low margin research, sales and trading portion. It took Mike Mayo 7 years to figure out that nobody gives a whit about his research reports, and the same amount of time for Prudential to realize that they weren't generating enough revenue to pay for a "big-time" analyst like Mike Mayo? And these investment bankers are the smartest guys in the room, eh?
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