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BMO Reclaims Title as No. 1 Research House in Canada

December 5th, 2018 by TopGun Press

BMO Reclaims Title as No. 1 Research House in Canada
Released by Brendan Wood International

Confidential Closed Circuit Communication
December 5th, 2018

Dear Panel Members & Clients,

After an eight year hiatus from its 29 consecutive year reign in the Number 1 spot, BMO retook the title in 2018, a year of intense competition exacerbated by the MiFID induced rationalization of investors’ commission budgets. Nesbitt Thomson’s Research Director, Phil Heitner began the Nesbitt leadership tradition in 1979/1980, his closest rival in the ensuing years being Burns Fry until the two firms were merged in 1994 leading to nearly two more decades of Canadian research leadership. Under the leadership of Aine O’Flynn and Bert Powell BMO has recaptured its research leadership in Canada’s domestic market. BMO has also successfully asserted itself in the US market along with its current rival RBC.

Borders no longer define a research and investment banking franchise rather a bank’s geographic footprint is the result of the stocks the bank chooses to cover. In fact, this has become the most consequential strategic decision an investment bank makes. For example, the research teams of Canadian investment banks cover 327 Canadian names pretty intensely. However, the top 50 of these Canadian names generate more commissions than the remaining 277, which may be why we see multi-national investment banks choosing from Canada’s top 50 names rather than investing in branch plants and teams on the ground in Canada. In keeping with this strategy trend, BWI now evaluates global investment research on a name by name basis. In other words, we answer the question as to how much does coverage of a particular company generate in commission $ (and banking fees), and how much does each particular analyst get paid by investor clients globally for his/her coverage of the name? Because of pressure on commissions, investment banking fees have become a closer priority of research target coverage. Investment banks ask themselves why produce research on a company that does not also generate banking fees in which our bank can participate?

In order to quantify commissions paid per corporate name and to whom, Brendan Wood partners debriefed more than 1200 institutional investors across North America and Europe this year including those who pay for research on Canadian names.

Is investment research still important to modern investors? The answer is a definite yes, according to the findings of Brendan Wood’s Shareholder Confidence Intelligence Project which involves daily debriefing of investors throughout the world on their use of research analysts. In fact the dependency on independent investment research has increased but, paradoxically the investor budgets which pay for it are decreasing as is the supply of research, especially research which can claim to be fully independent. Compartmentalism is working to the detriment of both the buy and sell sides of the business. In an already highly regulated industry, the adoption of policies compliant with the MiFID movement increases the bureaucracy which can and does override some investment priorities. For example, research on small and mid cap companies is in demand by portfolio managers looking for growth and turn around situations but the cutbacks in commissions make it hard for portfolio managers to pay for the service and therefore harder for the sell-side to provide it.

There is some uncertainty about the extent to which research budgets will be cut and how far investment dealers will continue delivering research in a decreasing revenue environment. An interesting aside is the fact that analysts and their colleagues in sales have traditionally been paid for generating investment ideas, often spontaneously. In the emerging regulated institutional payment environment that may be a lot harder to do. In a brokerage business that pays less and less it may be harder to find professionals with the creative expertise to offer the ideas.

Domestic Canadian commissions have dropped from CAD $1 Billion to CAD $560M over the last decade. This is offset somewhat by the US and European ‘buy in’ to the Canadian market which now generates a further CAD $700M in commission dollars. The incursion of US global dealers into Canada has been modest, largely because the size of the uniquely Canadian stock market is not as financially attractive as other markets from an American multi-national market perspective. The Canadian market is dominated by Canada’s six major banks who share about 60% of the commissions for equity research, sales & trading and about the same share of investment banking fees. The weight of the US dollar over the loonie is also a factor in US thinking about competing in the all Canada space. Nonetheless, the potential of multi-nationals to selectively encroach on Canada is considerable. The best defense maybe offense, however only BMO and RBC have seriously challenged in the US market.

There is definitely a demand in the investor world for independent research but limited commissions available to support it. The dynamics of the Canadian business are such that TopGunSM research analysts will garner 30% up to 50% of total commissions available on a corporate name. Therefore if a firm’s analyst is not in the TopGunSM class, the financial returns diminish precipitously. Canada’s independent boutiques have not yet strategically responded to the competitive landscape despite the needs and opportunities to do so. The lucrative wave of marijuana deals has been an understandable revenue generating distraction. The future of Canada’s independent investment dealers, post the marijuana boom, is not yet clear but clearly these firms have a decision to make. Are they going to be the very best at what they do, namely be paid for creative, independent, TopGunSM research, or struggle with big bank competition, diminishing investor budgets and thinning margins. The original boutiques were inspired as a career alternative for the best of the best. Most boutiques were founded by TopGunSM analysts.

The Top Canadian Equity Research Teams:
(Order by Rank):

BMO Capital Markets
RBC Capital Markets
Scotia Capital
TD Securities
CIBC World Markets
National Bank Financial
Desjardins Securities
Macquarie Bank
Canaccord Genuity
Raymond James

Copyright© 2018 All Rights Reserved – Reproduction in any form, strictly prohibited

The TopGun Canadian Equity Research Analysts in Sector 2018:
(Alphabetical Order by Sector)

Sector #1 TopGunSM Analyst #2 TopGunSM Analyst #3 TopGunSM Analyst
Agriculture and Chemicals Joel Jackson (BMO) Jacob Bout (CIBC) Ben Isaacson (Scotia)
Alternative Energy Robert Kwan (RBC) Rupert Merer (NBF) Ben Pham (BMO)
Banks Sumit Malhotra (Scotia) Mario Mendonca (TD) Darko Mihelic (RBC)
Base Metals & Minerals Orest Wowkodaw (Scotia) Greg Barnes (TD) Alex Terentiew (BMO)
Biotech & Pharma, Healthcare Martin Landry (GMP) & Neil Maruoka (CG) Doug Miehm (RBC)
Consumer Products Mark Petrie (CIBC) Michael Van Aelst (TD) Peter Sklar (BMO)
Diversified Financials Geoff Kwan (RBC) Phil Hardie (Scotia) Paul Holden (CIBC)
High Tech Thanos Moschopoulos (BMO) Richard Tse (NBF) Paul Steep (Scotia)
Industrial Products Maxim Sytchev (NBF) Walter Spracklin (RBC) Benoit Poirier (DES)
Insurance Mario Mendonca (TD) Sumit Malhotra (Scotia) Tom MacKinnon (BMO)
Media Drew McReynolds (RBC) Jeff Fan (Scotia) Tim Casey (BMO)
Oil & Gas Services Jon Morrison (CIBC) Jeff Fetterly (Peters) Vladislav Vlad (Scotia)
Oil & Gas – High-Payout Patrick Bryden (Scotia) Ray Kwan (BMO) Jeff Martin (Peters)
Oil & Gas – Large Cap Randy Ollenberger (BMO) Greg Pardy (RBC) Justin Bouchard (DES)
Oil & Gas – Small/Mid Cap Ray Kwan (BMO) Jeff Martin (Peters) Kurt Molnar (RJ)
Precious Metals – Large Cap Tanya Jakusconek (Scotia) Greg Barnes (TD) Andrew Kaip (BMO)
Precious Metals – Small/Mid Cap Ovais Habib (Scotia) Trevor Turnbull (Scotia) Michael Gray (MAC)
Pulp, Paper & Forest Products Daryl Swetlishoff (RJ) Sean Steuart (TD) Hamir Patel (CIBC)
Real Estate and REITS Neil Downey (RBC) Mario Saric (Scotia) Michael Smith (RBC)
Telecommunications Jeff Fan (Scotia) Vince Valentini (TD) Drew McReynolds (RBC)
Transportation Walter Spracklin (RBC) Fadi Chamoun (BMO) Kevin Chiang (CIBC)
Utilities Robert Kwan (RBC) Ben Pham (BMO) Robert Hope (Scotia)
Economics Stefane Marion (NBF) Avery Shenfeld (CIBC) John Aitkens (TD)
Index Analysis Mark Steele (BMO) Andrew Moffatt (Scotia) Peter Haynes (TD)
Portfolio Strategy Martin Roberge (CG) Brian Belski (BMO) Ian de Verteuil (CIBC)
Quantitative Analysis Mark Deriet (Cormark) Christopher Dutton (TD) Mark Steele (BMO)
SmCap/SpSits Martin Landry (GMP) Peter Sklar (BMO) Dimitry Khmelnitsky (Veritas)
Technical Analysis Mark Deriet (COR) Tina Normann (Eight) Dennis Mark (NBF)

* Analysts may have dropped coverage or moved firms

Copyright© 2018 All Rights Reserved – Reproduction in any form, strictly prohibited

About Brendan Wood International:

Brendan Wood International (BWI), formed in 1970, is a private partnership generating independent confidential performance audits throughout the world. Relying on real time intelligence, the firm advises public companies, institutional and activist investors, investment banks and broker dealers on strategy, performance and recruitment of TopGunSM talent. The firm’s partners have formally presented at 1000+ C level strategy meetings and corporate off sites in fifty cities. Brendan Wood founded the exclusive TopGunSM Club.

Related Links:


Jordan Novak
Brendan Wood International
+1 416 924 8110

Amanda Knott
Managing Director
Brendan Wood International
+1 416 924 8110

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