NEW YORK Four years ago, J.P. Morgan Chase had no analysts in India. The bank now has 80, including Naresh Bilandani, a graduate of the London School of Economics who was hired last year in Mumbai to help provide clients with investment recommendations on European lenders.
The group accounts for 14 percent of J.P. Morgan's research staff and illustrates a growing trend. Niket Patankar, co-founder of Adventity, which provides research services to investment banks, estimates that number of analysts in India has swelled to 5,700 from 300 in 2002.
Securities firms are leaning on the expanding pool of financial talent in India so they can afford to keep franchise analysts in New York and London. A 2003 settlement with U.S. regulators cut off Wall Street research departments from the revenue they had received for helping investment bankers bring in fees. Now institutional customers like Fidelity Investments are refusing to pay the inflated trading commissions that for decades helped subsidize analyst reports.
"We got outsourced," said Tom Larsen, who lost his job in London covering British companies when Credit Suisse Group moved five of the seven analyst jobs in his group to India. "Wall Street is aware that the old model, financed by investment banking, doesn't work anymore. So it's trying different new models, including outsourcing."
Larsen is now a senior policy analyst at the CFA Institute in Charlottesville, Virginia, which awards the Chartered Financial Analyst certification to candidates who pass a grueling set of exams.
The number of people taking CFA tests in India has climbed fivefold since 2002 to 3,178 this year, according to the institute. The number of U.S. candidates fell by about 25 percent to 30,384.
Patankar predicted that India would have more than 20,000 analysts by 2011. There are now about 15,200 analysts at brokerages and investment banks in the United States, according to Thomson Financial, and 1,200 in Britain.
"Research is probably the easiest investment banking service that can be duplicated in India, where people are just as smart and educated as here," said H. Nejat Seyhun, a professor of finance at the University of Michigan in Ann Arbor. "Technology has reduced the need for physical presence."
J.P. Morgan, the No. 3 U.S. bank after Citigroup and Bank of America, is keeping more experienced analysts close to home in New York. Among them is Michael Weinstein, ranked No. 1 in Institutional Investor's annual poll for his coverage of medical supply and device companies. Weinstein works less than an hour's drive from the biggest company in that industry, Johnson & Johnson, which is based in New Jersey.
Bilandini's Mumbai office is about 5,200 kilometers, or 3,200 miles, from the headquarters of the National Bank of Greece in Athens. It is one of the companies that he tracks for J.P. Morgan.
Investment banks are "salami-slicing their research activities and separating what needs to be at high-cost centers like New York from what doesn't," said Chris Gentle, an analyst at Deloitte Services in London.
Wall Street's research spending fell about 35 percent from 2001 to 2005, Brad Hintz, an analyst at Sanford C. Bernstein in New York who tracks the securities industry, said. Hintz's own firm relies on bundling - billing clients for research and trade execution in a single commission - for the revenue it needs to compensate analysts.
Total commissions paid for trading U.S. stocks dropped to $11.3 billion in 2005 from $13.4 billion in 2002, according to a survey of 239 fund managers by industry consultants at Greenwich Associates. The proportion allocated to research stayed constant at 40 percent, the survey found, which made it impossible for the securities industry to maintain the same research staff in high-cost centers.
But analysts in cities like Mumbai, formerly known as Bombay, make as little as $20,000 a year, according to Absolute Return, a hedge fund newsletter. That compares with an average of $181,000 in the United States in 2005, according to the CFA Institute.
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